As you already know, starting your own ecommerce business can be a great way to break into the entrepreneurial landscape and become your own boss. Yet while there’s plenty of advice out there that can help you get started on the path to success, there are a few points that are rarely covered, yet are critical to the future of your business.
You guessed it; we’re talking about managing your accounts. Of course, you’ve almost certainly set a budget for your venture, and planned out how to spend it. You may even have made some predictions regarding your future costs and likely returns. However, effective management of your business finances also requires you to keep accurate records of all transactions.
Not only does this make it easier for you to review your activity and learn from prior successes and failures, but it is also essential if you hope to be able to file your tax returns with confidence. To bring you up-to-speed, here are the basics of managing your business accounts, and what you can do if you run into difficulties.
Keep Business Accounts Separate
The first rule of business accounting is to keep your personal finances completely separate from those related to your work. It can be all too easy to cover a stock purchase with a personal account, or move funds between business and personal accounts.
However, as soon as you do this, you make it far harder to keep track of your transactions, and to verify which of your outgoings should be counted as business expenses. This becomes particularly important when you come to file your tax return, as any errors can have costly legal consequences.
Create a separate account for your business transactions, both incoming and outgoing. If in any instance you need to move money between your accounts, clearly label and record the transaction, so it is easy to see what the money was for. For example, you may be paying yourself a wage, or making a purchase from your own business.
The next step towards effective bookkeeping is to record absolutely everything. This means keeping receipts for all expenses, and having a record of all of your income. When running an ecommerce business, the majority of your transactions will be digital, which makes it a little easier to keep track of everything. However, if you make any cash purchases, it is important to keep the receipt, and record the details of the transaction as soon as possible.
An accurate record not only helps you to calculate your profits, but also makes it far easier to process your taxes.
- Keep a record of all fees paid. For example, if you are running an FBA store, there may be listing and selling fees to consider.
- Deductions can include mileage, business meals, and even health insurance in certain cases.
- Stock purchases, training, and business software can all be recorded as expenses.
- If you work from home, you may be able to include a percentage of your mortgage or rent as a deductible.
If in doubt, a professional accountant will be able to advise you on what you can and can’t class as a business expense. In particular, you should ensure you are aware of sales tax regulations in your state, and how they might impact your business.
Add Bookkeeping To Your Weekly Schedule
It’s no good scrambling to find all your paperwork at the last minute when you need to file your return. Receipts can go missing, and details of transactions can become confusing, or difficult to remember. This makes it far more likely that errors will creep into your bookkeeping, which can have serious long-term implications for your business.
It’s best practice to update your accounts at least once per week. This way, all details will still be fresh in your mind, and you will have a clear and comprehensive record at the end of the tax year. So whether you file your own return or hand it over to your accountant, you will save a whole lot of time and stress by keeping on top of this aspect of your business.
Know the Laws In Your State
When you run an online business, it’s easy to forget that you still need to consider state regulations, in addition to federal legislation. Your business might be impacted by a variety of laws, depending on where it’s registered and where you trade.
The tax rate can vary from state to state, as do the filing requirements. For example, some states don’t need you to file a state income tax return. However, to meet federal requirements, you will need to cover both sales and income tax. Keep in mind that in certain cases, not just states, but individual cities can have specific income tax filing requirements.
Even if you are based outside the US, if you plan to conduct business there, even online, you may need to provide a W-8BEN form to demonstrate that you are exempt from tax-reporting obligations. FBA sellers are required to provide this directly to Amazon.
Keep in mind that if you make over 20,000 dollars in gross sales as an FBA seller, your payment provider will automatically file a 1099-K form on your behalf. However, you will still need to complete and file a full tax return, regardless of whether you are above or below this threshold.
As all good ecommerce entrepreneurs know, you can save yourself a lot of time and effort by automating business processes. So you may be pleased to hear that you can even do this with your accounting.
Apps such as TurboTax and QuickBooks, to name just a couple, can keep track of all your digital transactions, receipts, and other financial details. Just be sure to manually update them with any physical transactions, so you can keep all of your information in one place.
As with all aspects of your business, if you are confident that you can manage your accounts independently, then you can make some great savings by doing your own bookkeeping. However, mistakes can be costly, and damaging to your business, particularly when it comes to filing your tax returns.
If you have any uncertainties about any aspect of your business accounting, you should definitely chat to a professional. Whether you ask them to take over for you, or simply seek their advice, it is always better to check with an expert than simply hope for the best.
That being said, as long as you are organized and committed to keeping your accounts in order, you probably won’t have too much trouble. Be sure to check out automated accounting services to find the ones that work best for you, and never be afraid to ask for a second opinion if you have any doubts.