As a business owner, you are likely to constantly have that nagging feeling in the back of your mind about your “books.” This is a task that so many put off completing because it simply isn’t the most fun part of your business. While the basic concepts are simple enough, it quickly gets complicated when you dig further into the details causing the dreaded feeling you are having. There are daily operations, month-end closings, and the most dreaded taxes of many kinds. When you own an online business or e-commerce, the accounting function can feel even more complicated since you may have sales across the entire country or even the world. Getting a handle on the best accounting practices will fill you with the confidence you need to get this task out of the way so your mind can be clear to focus on the fun stuff.
Document the Details
Your business may be creating a unique piece of art you made to be sold to the highest bidder or you may be a freelance content creator helping other small businesses. Each of these scenarios will have a different set of expenses and sales. Someone who is simply using their laptop to create content may seem to have minimal costs. However, think about what it takes to power that laptop and which software programs might be utilized to make it happen. An artist may forget about purchasing a set of oil paints once they get started with their unique piece. Without documenting these expenses, you could be leaving money on the table by paying more in taxes at the end of the year. You will also not fully understand how successful your business is (or isn’t.) Developing an excellent process to record every aspect of your business, both expenses and revenue, will ensure you know exactly where your business stands.
Invest in Software
You have probably seen an old television show or movie where a small business owner’s desk is buried in paper receipts. When something goes wrong, these receipts are sorted out by their accountant or IRS agent. Today, many have the same sort of scene; only a pile of electronic receipts has gone nowhere! Investing in a good software program will give you a powerful tool to quickly classify those receipts from your phone or computer. You can link these programs with your company credit or debit cards so they are filed directly into the correct category. When you make a sale via an online payment processing system, the revenue automatically posts to the proper revenue bucket. A small monthly or annual investment into a good mainstream software program will save you hundreds of hours of time that will be better spent focusing on your business strategy.
Read Your Reports
Once you have a handle on entering information, you can access some fantastic data. Your accountant may send you this data regularly, or your software program may deliver it to your inbox electronically. These reports will be full of helpful information about how your business is performing. If you need clarification on these numbers, schedule some time with your CPA to review them. With time, you will become more familiar with patterns and trends. This will help you quickly address any areas of concern to avoid a major disaster. You will notice if an area of expense has gone up tremendously or a revenue stream has gone downhill. Reading the reports delivered to you will allow you to keep your business on a stable plan.
Know Your Tax Liability
So many social media posts exist of people “upselling” products they have made, purchased, or scored at their local thrift store. Your e-commerce business may revolve around this exact model. You and your employees find good deals and then list them on the websites people purchase from. This can give you a significant profit margin on the item and drive the success of your business. However, have you collected the appropriate tax for these items? Are you responsible for sales tax, or is the platform in which you are selling accountable for collecting it? Have you made global sales? Do you need to report income in these other countries? Having an online business opens your market significantly, but you must be sure you know your responsibilities as a business owner before making that first sale.
Owning a business is so much fun and can give you a fantastic work and life balance. However, keeping that business financially sound can feel like a lot to manage. Like most things in life, things will get easier once you have gained some experience. Break each task down, do one thing at a time, and engage with the experts to validate your process. Once you have a solid process, your accounting process will move along smoothly.
Engaging with a CPA will get you started and help you put the best tools in place for your business. The Hayes & Associates CPA team can help you get a good grasp on your financials so that you may focus on the core functions of your business. Contact us to get started.
