Accounting basics for e-commerce business owners

Are you an e-commerce business owner? Get to know the accounting basics that will lead your business to success.

Setting up an e-commerce store requires little to no initial investment making it an ideal and affordable business venture for entrepreneurs. With low start-up costs and minimal overheads to pay for, you can set up shop and begin selling almost immediately.

However, among the excitement and anticipation of starting your own business, it is important to remember to pay attention to the not so glamourous side of business operations. That’s right, we’re talking about taking care of your accounts.

Accounting is a painful necessity for every business and if you want your e-commerce business to succeed, you can’t avoid it. But we are here to make things easy. This blog will mention all the accounting basics every e-commerce business owner needs to know.

The importance of understanding accounting

Knowing and understanding basic accounting principles makes it easy to read your business financial information. With a basic understanding, you can effectively manage your finances, accurately calculate profitability, and estimate risk.

Without baseline knowledge of accounting and the processes involved, it can be difficult to keep track of and understand the impact of financial transactions such as any money coming in and money going out.

Business accounting involves regular tracking, analysis, and management of business finances. Even if you outsource to an e-commerce accountant, it can still be beneficial to know common accounting terms and phrases and understand what they mean.

Track your cash flow

Having a positive cash flow means that more money is going into your business than coming out. This lets you know that your e-commerce business is in a strong financial position. It is important to track and manage your cash flow to estimate profit and ensure you can afford the essential costs that come with running a business.

You can track your company’s cash flow by using a cash flow statement that provides an overall view of the money that comes in and out of the business. This should be conducted every month for an up-to-date and accurate view of your business’s financial health.

Keep on top of inventory

Essentially, your inventory equals money so it is an important accounting basis to consider. The money tied into your inventory can fluctuate due to product supply and demand so while you do not want to run out of inventory and lose sales, you also do not want to be left with your money sitting on your shelves.

Keeping on top of inventory will allow you to predict and solve inventory issues before they get out of control. Inventory management will provide you with an up-to-date view of sales, returns, and stock levels so you can accurately predict the minimum volume of inventory you require. This way, you will never have to forfeit sales due to low stock and you will not waste money on an overstocked inventory.

Know your break-even sales requirement

Your break-even sales requirement is the minimum amount of sales that need to be achieved to generate a profit. Knowing this information allows you to make informed business decisions in regard to pricing, production level, and other factors that impact the bottom line. If you do not meet the break-even requirement, you can use your cash flow statement to see where you may be able to cut costs.

In addition, your break-even points help to analyse product performance and determine the risk of introducing new products and services to your store. This information can support important investment decisions so you can make the best move for your business.

Understand the balance sheet

A balance sheet is made up of assets, liabilities, and equity. Essentially, assets are things of value, liabilities are debts or payments you owe, and equity is the difference between the two. Your balance sheet will detail what your e-commerce business owns and what it owes. By looking at this sheet, you will be able to quickly sum up the financial health of your business.

It is important to understand the balance sheet and what it means to determine whether your business has borrowed too much money or whether you have enough cash to meet demand. Not paying attention to the balance sheet could come with significant consequences for your e-commerce store.

Speak to an accountant

Don’t leave the success and future of your e-commerce business down to chance. Get in touch with a specialist e-commerce accountant today to see how your business can thrive. E-commerce accountants understand exactly how your business operates and have specialised knowledge on how to turn your online business into a growing success. A specialist accountant will help you understand the accounting basics and more.

Key takeaways

• Review and update your cash flow analysis regularly to get an accurate view of your e-commerce businesses financial health.
• Keep on top of inventory to prevent low stock and overstocked inventory.
• Take care of inventory management to understand sales and return rates.
• Know your break-even requirement to inform pricing strategy, production level, and other factors that impact the bottom line.
• Understand the balance sheet-what your business owns and what it owes.
• Get in touch with an e-commerce specialist accountant for accounting support.

Get in touch

At Unicorn Accounting, we offer unlimited support and proactive advice because we know what your business means to you. For more information or to discuss how our accounting services can support you, get in touch today.

Why choose Unicorn Accounting?

Ensure you keep on top of your finances and tax obligations by outsourcing to an accountant. This means that you don’t need to worry about your end of year accounts, payroll, or bookkeeping requirements.

At Unicorn Accounting we are e-commerce accountants who help make your online business a growing success. We offer e-commerce accounting advice, financial management, bookkeeping, cash flow statement, and tax filing services to support and scale your business.

Our team of accountants and Xero-certified advisors have experience working with both small start-ups and family-run online stores to large-scale, international retail and e-commerce brands.

If you’ve got an online store, we have the best solution for you. Providing you with a financial arm to your business through our sector experience, and skills with innovative technologies. To see how we can help you maximise the scalability of your e-commerce brand all year round, get in touch with Unicorn Accounting today. Or click here to get a free quote.

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