Covid-19 has pushed a lot of businesses online and created an unprecedented surge in e-commerce growth. While many consumers are excited to return to in-person shopping, we cannot underestimate the need for e-commerce options. Platforms such as Amazon and Shopify have created the perfect avenue for small/medium-sized businesses to expand their market reach locally and abroad. However, while there are many exciting benefits to “going online,” the process of bookkeeping when using e-commerce platforms can be overwhelming due to running different platforms, the fees associated with sales and the need to keep inventory up to date across all platforms.
What is e-commerce bookkeeping?
Bookkeeping helps e-commerce business owners keep track of their income and expenses. However, record-keeping, when you use an e-commerce platform, is quite different from the process used for regular brick and mortar retail due to the following reasons:
- Businesses that use e-commerce platforms tend to sell their products across different locations and countries where the tax regulations differ.
- Unlike brick and mortar stores, every sale on an e-commerce platform is usually accompanied by a hidden fee/charge from the merchant. Hence, the cash received for sales made might be different from the sales made per the record.
- With e-commerce platforms, sales can be made at any time in the day, unlike brick and mortar stores where sales are made only when the store is open.
- Businesses that use e-commerce platforms need to keep accurate records of inventory across all platforms at all times to avoid customer service issues and overselling items.
Best bookkeeping practices when using e-commerce platforms
- Automation: It is important to take advantage of technology when bookkeeping to save time and unnecessary headaches. Choose accounting software that integrates with your e-commerce platforms to ensure records are updated and entered in real-time.
- Budgeting: The expenses required to maintain an e-commerce platform can be high. Therefore maintaining and managing your budget is essential. Failure to maintain a budget can result in consistent losses for a business.
- Cash Flow Management: Unlike regular brick-and-mortar retail, where cash is received directly when a sale is made, many e-commerce platforms provide lump-sum payments either bi-weekly or monthly. Therefore, a lack of proper cash flow management can result in an inability to keep the business afloat while waiting for a deposit from your e-commerce platform provider.
- Frequent Bookkeeping: Due to the number of transactions and service costs associated with businesses that trade on e-commerce platforms, it is necessary to carry out monthly or quarterly bookkeeping to ensure that all your records are up to date. Failure to do this can result in an overwhelming, messy, and inaccurate bookkeeping system that will not reflect your business’s true financial position.
- Hiring an expert: Experts are very aware of the latest news, have experience with the tax laws for different jurisdictions and know most of the best practices for ensuring that your financial records are accurate. Therefore, it is essential to have them in your corner to have a successful business. Experts do not only help with getting the job done. They are also a good resource when you need advice on how to grow your business.
Finding a bookkeeper that can accommodate your technology needs isn’t easy, but at Homeroom, we have you covered.
