If you’ve set up an eCommerce business, there are many things to learn, manage and plan. Many of those things are interesting, involved, even exciting. Possibly the last thing on your list is setting up accounting. But if you think about it, accounting is one of the most important aspects of business – so it pays to stay on top of it.
In this article we’re going to walk through a few basics to get you started. You may wish to outsource your accounting to an expert, but even so it’s important you understand the basics.
One of the vital parts of running a business is your cash flow. In basic terms, this means keeping track of the money coming in and going out of your business, so you can be assured you can afford your expenses. It’s best to do a cash flow forecast either weekly or monthly (in advance) to prepare for any possible shortfalls.
Bear in mind that keeping tabs on cash flow is more than tracking your income from products and services, and outgoings in terms of bills. You also need to account for periodic outflows, such as PAYG withholding, income tax, superannuation and GST, which are due periodically.
Another basic you need covered is your accounting software. This is especially relevant for eCommerce businesses, where you can integrate your software (such as Quickbooks or Xero) with your eCommerce platform (such as Shopify).
More than simply a way of generating invoices or tracking expenses, accounting software covers everything you need to monitor cash flow and lodge tax information. They can also track inventory.
Break Even Sales
In order to run a healthy business, you need to ensure you are at least ‘breaking even’. This means your incoming sales are enough to cover your costs. It’s an important part of cash flow management and forecasting.
As a formula, Break Even Volume (BEV) = fixed cost/revenue per unit minus variable cost per unit = operating costs/unit margin
Be very clear about this number for your business, and if your sales fall below break even, be proactive in finding a solution.
Even though it’s one of the least pleasurable topics, being aware of and staying on top of your tax obligations is critical in running a successful business. It’s one of those areas that requires an expert eye and mind.
In Australia, the big tax considerations include:
Goods and Services Tax (GST) – a tax payable to the government on most goods and services. You collect GST from your customer, and pay it to the government.
Income Tax – the amount you pay to the government each year as a result of your income statement and activity.
Pay As You Go Withholding Tax (PAYG) – when you have employees, you set aside tax on their behalf throughout the year.
As an eCommerce business, it’s important to stay on top of your stock levels and the value of what you hold. Of course this is only relevant for products.
Keeping track of inventory allows you to be clear about how much stock to hold, what is turning over well and what isn’t, and how much liability you have held up in stock. If prices were to change, the profit associated with the inventory can also change.
If you have an eCommerce business – or are starting one – and would like help establishing the foundations of your accounting, contact us at QC Accountants. Our team of professionals can help you manage all financial aspects of your growing business.
Contact us on 07 5593 6060 – we are here to help you.