E-commerce Accounting: The Best Basic Practices
As you start an online business and look for ways to improve and streamline your company, you’ll find that accounting and bookkeeping are essential.
From keeping track of your daily sales to having proper records in place for tax time, managing your books should never be put on the sidelines because keeping your records straight and accurate ensures your business operates efficiently and legally, too.
Running a successful e-commerce business in the UK requires not only an understanding of its tax obligations but also implementing best practices in accounting. Proper accounting is essential to ensure your business remains compliant but also allows you to make informed and timely business decisions, crucial in obtaining that all important competitive advantage.
There’s a distinct difference between bookkeeping and accounting. However, these two concepts go hand in glove when running your ecommerce business. Bookkeeping is the recording of a business’s financial transactions. Accounting, on the other hand, is the interpretation of those business transactions.
Bookkeeping is the recording of all business income and expenses and maintaining proper documentation such as receipts, invoices, and bank statements. This will not only make it easier to calculate and pay your tax commitments but also provide valuable insights into the financial health of the business.
Businesses should consider using accounting software, like Xero, to automate financial tasks and streamline these processes. This can help to save time and reduce the risk of errors.
Using an MTD compliant software becomes even more essential when the business has a requirement to register for VAT and the submission of regular VAT returns to HM Revenue and Customs (HMRC). Failure to comply with these regulations will result in penalties and fines.
Bookkeeping duties involve tracking purchases and inventory every step of the way. You need to know how much inventory you sell and what’s left in stock. This way, you know your sales are accounted for and also know when it’s time to order more products.
With the right platform integrations, you can easily track your sales, returns, and other figures. All your software should integrate so your company operates like a well-oiled machine.
When you choose accounting e-commerce software, consider how it works with your online e-commerce and fulfilment platforms. You need all your e-commerce platforms to function together to lead to the most effective results.
Accounting is the action of interpreting, analysing, classifying, reporting, and summarising these numbers. It’s not just enough to document spending and income. You must also interpret and analyse the figures to see if you’re making a profit or indeed losing money. With this information, the e-commerce owner can make considered decisions.
It’s vitally important to have a good understanding of the financials of your business, and to be able to regularly review your finances, so you can make informed decisions about the direction and growth of your business. It's also a good idea to consult with a professional accountant to ensure that you're taking full advantage of any tax reliefs and benefits you're eligible for.
Implementing best practices in accounting is crucial for the success of an e-commerce business in the UK. Keeping accurate financial records, separating personal and business finances, compliance with regulations, using accounting software and having a good understanding of your financials will help you to stay compliant and make informed business decisions.