Business money management is an integral part of running a successful eCommerce business. It involves setting a budget, tracking sales, and analyzing key financial metrics.
Whether you’re just starting out or already have a booming online retail business, effective eCommerce bookkeeping is crucial for maintaining accuracy and efficiency. A streamlined accounting system reduces errors and simplifies tax season, making it easier to focus on growth.
Track Revenue and Expenses
Keeping accurate records of revenue and expenses is a vital aspect of business money management for eCommerce. It helps ensure that you are generating enough profit to meet your expenses and avoid going into debt. It also enables you to make informed decisions about how much money to invest in your business.
Some of the most common eCommerce business expenses include payroll, shipping, rent, equipment, and utilities. Adding up these totals allows you to calculate your cost of goods sold (COGS). Another common expense is the sales tax you collect and remit to the state. Tracking your sales tax income and remittances will help you manage the accuracy of your sales taxes, maintain healthy cash flow, and steer clear of expensive headaches during tax season.
You should also keep track of your inventory and order history so you know exactly how much you have in stock at any given time. This will prevent you from running out of products or making costly mistakes such as ordering more products than you need. It’s also important to note that high eCommerce shipping costs can negatively impact your bottom line, so you should factor these expenses into your COGS calculations.
Finally, you should set up a separate bank account for your business and never mix your personal funds with those of the company. This makes it easy to track incoming and outgoing money and simplifies the bookkeeping process. Additionally, it reduces the likelihood that employees will use company funds for personal purchases and keeps your financial records organized and ready for tax season.
While it’s not always possible to avoid relying on external funding, you should try to make this an expansion move rather than a sustenance move. If you do decide to use funding, make sure that it is a flexible financing solution like Wayflyer’s that lets you focus on your business and scale up operations without draining your capital or putting your assets at risk.
Get Maximum Cash Flow
E-Commerce businesses have to balance several factors, including product development, customer relationships, and marketing. A big part of this is cash flow, which can be hard to predict and manage. Many companies struggle to keep their balance sheets healthy, and this is why so many of them end up shutting down.
There are a few ways that e-commerce companies can improve their cash flows. One is by reducing their expenses. This can be as simple as switching to a cheaper payment processor or negotiating better terms with suppliers and vendors. The other way is by encouraging customers to pay earlier. For example, if you are selling B2B, try offering prepayment discounts or requiring invoices be paid within net 30 days rather than the more typical net 60. This can help your company avoid having to use existing cash reserves to cover expenses.
The final way to improve your e-commerce business's cash flow is by seeking out outside funding sources. This can be difficult for newer companies, especially if they have not yet established a credit history. For this reason, the best option for many eCommerce businesses is to look for revenue-based financing, such as the solutions offered by Ramp. This type of financing provides a flexible source of capital and allows you to get the funds you need without waiting to see if you are approved for debt financing.
Another way to improve your e-commerce business's overall financial health is by establishing a budget and sticking to it. This is an important step because it will ensure that you are spending money on things that can contribute to growth. A well-thought-out budget will also make it easier for you to raise additional capital when the need arises. Just remember that any capital you raise should be used for expansion, not just sustenance. Otherwise, it might not provide the returns that you need to keep your e-commerce business growing. This is why it’s important to track your e-commerce company's cash flow, so you can always be sure that you are investing your funds wisely.
Prepare for Tax Season
The financial aspect of running an eCommerce business is a complex matter. Many eCommerce CEOs have their hands full worrying about everything from product quality to customer relationships, but they should always put a high priority on their business’s money management. This is because cash flow problems force 82% of small businesses to close their doors. Thankfully, a few simple steps can help eCommerce brands improve their budgeting and put their money where it needs to go, boosting working capital and growing their bottom line.
A structured budget is the backbone of any successful business. When generating a budget, it is important to take into account both recurring monthly and yearly costs. This will allow you to better manage your expenses and predict revenue to avoid surprises down the road.
Another key step in improving your business’s finances is tracking inventory. This will help you know when your inventory is low so that you can restock it, or even reduce the amount of inventory you have on hand. Tracking inventory will also help you stay away from overstocking high-cost products that don’t sell, or understocking items that are in demand and turn customers away.
Additionally, if your business offers credit to customers, it is important to keep in mind accounts receivable and follow up with outstanding invoices. Leaving this unattended can lead to late fees, lowered business credit, and sour vendor and lender relationships.
Finally, it is essential to understand different tax regulations and compliance issues. For example, if you are selling your products internationally, you may need to pay sales tax in multiple countries. Taking time to consult a professional with experience in international taxation can make all the difference when it comes to navigating this complicated area of eCommerce business.
As the tax season approaches, it is important to make sure your business’s books are accurate and that you have the correct paperwork to file. Failing to do so can result in expensive penalties and even a loss of your business. To prevent this from happening, invest in accounting software that makes it easy to organize and track your bookkeeping. This can also help you catch mistakes before they become costly errors.
Manage Your Cash Flow
As an eCommerce business, your cash flow is one of the most important aspects of your business’s success. In fact, a recent US Bank study found that 82% of small businesses fail due to poor cash management. Managing your business’s money wisely is the best way to avoid a catastrophic cash shortfall and keep your eCommerce store growing strong.
One of the biggest things that affects an eCommerce business’s cash flow is its inventory levels. When you buy too much inventory, it ties up your funds that could otherwise be used for other needs. To minimize this problem, track your inventory levels closely and use inventory management software to reorder when necessary.
Another thing that can affect your cash flow is payment processing and accounts receivable. When you sell online, your payments may come in at different times of the month and can take time to process. This can delay your ability to reinvest in your business and can cause cash shortages. To help improve your cash flow, use a system that tracks and processes your payments quickly to ensure they’re received on time.
You also need to monitor your accounts receivable and follow up on late payments. If you don’t do this, you risk losing valuable customers and putting your business at risk. You can also work with your suppliers to negotiate better terms, such as shorter credit periods or reduced interest rates, to make it easier for them to pay you on time.
Finally, you should consider your marketing and advertising costs to find ways to reduce them. Effective online marketing can drive sales, but it can also cost a lot of money. You can try lowering your customer acquisition costs and increasing your average order value to reduce your overall marketing expenses.
It’s critical to understand how a company’s cash flow works and take steps to improve it when needed. By taking these tips into consideration, you can protect your eCommerce business from financial disaster and grow it to the size that you desire. Remember, having a positive cash flow means that you have enough money to cover your overhead costs and invest back into the business as needed.
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