A Basic Guide to Bookkeeping For Your E-Commerce Business
The beauty of an online e-commerce store as compared to a traditional one is that it can remain open 24/7 and all year round. This allows both local and international customers to browse and purchase your products whenever it is convenient for them, ensuring that you are maximizing your opportunity to sell. While the maintenance costs for your e-commerce business can be relatively inexpensive due to not having to rent a physical store or pay utility bills, proper financial planning is still required to track sales and expenses. You will also need to keep track of your stock levels and the orders you’ve processed. QuickBooks is a service that allows you to track all these things and is something you should consider using.
Just like the traditional retail industry, e-commerce bookkeeping and accounting have very similar processes. If you already have experience with bookkeeping, the transition is not too difficult. For those who have never had experience with bookkeeping, the principles are still simple to understand.
Why Is Bookkeeping Important?
It is important for businesses to track their day-to-day finances so that they understand where their money is coming from. More importantly, they will know where it is going. Once you know the financial inflows and outflows, you can develop strategies that will maximize your income and minimize expenses. This will help improve your profit margin and allow your business to grow. No matter which industry your business is in, there are three important financial statements that you need. These are balance sheets, income statements, and cash flow statements. We will discuss these further down below.
The balance sheet is crucial in showing how healthy your business is. It records your assets, liabilities, and owner's equity. A balance sheet will consist of two columns: one for your assets and another for your liabilities. When calculated correctly, your balance sheet will show the same value in both columns (either a profit or loss).
In the asset column, you will need to record all the assets your company owns such as product inventory, cash funds, and accounts receivable (the amount of money that is owed to you by clients). As mentioned previously, with an e-commerce business, there is unlikely to be a physical shop for your products. This means that you will have no rent to pay. As a result, cash and inventory will be your greatest asset as the expenses are fewer. In your liabilities column, you should include variables like debts and expenses. Business loans and mortgages are also considered liabilities and will have to be recorded.
You will record any money coming into your business on an income statement. This is usually over a period of a month, a quarter, or a year. Anything relating to your business and is income needs to be recorded on the income statement, and it can be divided into two different types: operating and non-operating income. When you make money from your business activity, e.g. sales of products, this is recorded as operating income. Non-operating income is any revenue earned by the business that is not related to its primary business activities, e.g. sale of equipment or investments.
Cash Flow Statements
One of the essential documents for an e-commerce business is the cash flow statement. This will show both your gross income revenue - the amount of money you made from sales - and your net profit, which is the amount of money that your company has after all expenses are paid off. Your cash flow statement will show all your income and expenses relating to your business operations and can help you determine whether the money you are spending is contributing to your business growth or not.
Totally Booked offers bookkeeping by QuickBooks Certified ProAdvisors based out of NYC. Get in touch today to see how we can help!