If you are an entrepreneur or business owner, you should know that 80% of new businesses fail within the first five years. The good news is that 90% of failed companies suffer from poor management decisions.
Why is this good news? Because getting your finances in order provides you with the information necessary to make solid business decisions.
When you operate a business dealing in e-commerce, you need an accounting firm that understands this unique type of business.
You must understand that deposits coming into your bank account from online sales, such as eBay and Amazon, are not revenue. Those figures include revenue. They also include chargebacks, credit card processing fees, and more.
The money you make is critical to your personal and company’s well-being. Whether you drop ship, have a warehouse inventory, conduct print-on-demand, or more, we can assist with getting your finances in order. We will help you gain the financial savvy necessary for operating a successful, profitable business.
Keep reading to learn how E-commerce Accountants can help you with business money management.
Financial Stability
Many businesses fail because they don’t exercise solid financial planning. Keeping a company solvent requires it to be profitable and productive. The most frequent causes of business financial distress include:
- Not using a budget
- Limited or inconsistent cash flow
- Not understanding net profit per product and end-of-year revenue
- Not preparing for unforeseen expenses
- Not raising enough capitol
- Not paying bills on time
- Too much debt
- Failing to meet reporting requirements
- Poor tax compliance
- Poor marketing tactics
- Mixing personal and business finances
No matter your business type, balancing your accounts payable and accounts receivable is imperative. Besides predicting necessary cash flow, you must also factor in contingencies. This includes changes in the industry, economic downturns, and shifts in clients/customers.
You must understand that just because you sell a product for $500 does not mean that it is income. What did it cost you to prepare that product for sale? What did you pay for parts, manufacturing, shipping, packaging, time, and overhead?
You need to deduct your costs for the product or service from the price you charge your client to determine profit.
Calculating Profit for Money Management
Profit is the key to success in business, and you need to calculate your bottom line. Profit is how the worth of a company is measured. The primary profit calculation is total revenue – total expenses = profit.
You must subtract both direct and indirect costs when calculating profit. Direct costs are things such as materials and staff wages. Indirect costs are overhead expenses such as rent and utilities.
Profit is what you have when revenue exceeds costs and expenses. For example:
- A child has a lemonade stand, and it costs them $0.50 for a cup of lemonade
- The child sells their lemonade for $2.00 per cup
- The child is profiting $1.50 for each cup they sell
This sounds very simple, but the overall picture is a bit more complex.
Net Profit determination requires subtracting all costs from generated revenue. The remaining amount is net profit, which includes non-cash elements.
Businesses use their net profit to determine how much they make during a specific period.
Gross Profit determination requires subtracting the cost of goods sold from generated revenue. The remaining amount is your gross profit.
This figure indicates your profit before expenses. The optimal amount is 30% or higher to cover taxes and other business expenses.
Operating Profit is the total profit of the business. You determine this figure by subtracting operating expenses from gross profit. This includes taxes and interest.
Profit vs Revenue
You must understand the difference between profit and revenue to manage your money. Profit is the bottom line, and revenue is the top line when doing accounting calculations.
Revenue appears at the top of the income statement. It is the total amount of sales income. Revenue recording happens at the time of sale, even if you do not receive the money at that time.
Profit appears at the bottom of the income statement. Profit takes into account all expenses.
Profit in accounting refers to the difference between price and cost. This is the bottom line. It is what entrepreneurs, business owners, and investors use to make financial decisions about the company.
What Is E-commerce Accounting?
E-commerce accounting assists companies in accurately tracking their business transactions. The firm understands the activities of an e-commerce business’s daily operation. They can provide guidance on financial business management.
In E-commerce, the costs of inventory, goods sold, and merchandise purchases are variables. These variables impact the bottom line. This can create challenges in developing accurate end-of-the-year financial statements.
The majority of businesses operate on several e-commerce platforms. They may also ship to different countries. This makes taxation and inventory management more complex.
Your e-commerce accounting firm understands these variables. They can help your business analyze its financial records for areas needing improvement.
Benefits of E-Commerce Accounting Services
Learning how to manage money for a small business is challenging. To develop, prosper and survive financially, you need to track finances. If you let your bookkeeping records slide, you do not clearly understand your financial situation.
The benefits of using an e-commerce accounting firm include the following:
- It is more cost-effective for knowledgeable professionals to handle financial management
- They help you manage cash flow so you can pay employees and maintain inventory
- A professional accounting firm is familiar with e-commerce procedures and practices
- E-commerce accounting services are up-to-date on tax law
- Clear, accurate financial records help you make informed business decisions.
- E-commerce accounting services can help you create a system for tracking inventory, sales, and when to order stock
- Assist in product costing using platform fees, discounts, competitor pricing, average unit cost, and net production cost
- Records under e-commerce accounting guidance are in order, making tax preparation easier
- Reduce legal risk by preventing violation of tax rules and regulations
- Help estimate sales volume using historical data, future sales cost, and competition to assess risk
- Saves time, allowing business owners and management to concentrate on improving business operations
- Prepares taxes, calculates tax implications of purchases, identifies deductible tax, reduces tax obligations
By having an e-commerce accounting firm assist in your financial management, you have guidance and the ability to answer all your financial questions.
It doesn’t matter whether you want to know how to record a business transaction, have questions about sales tax, financial responsibilities, or more; your accountant is there to help.
Getting Your Finances in Order
E-commerce Accountants specialize in tax, accounting, and business structuring for e-commerce companies. This includes drop shippers, Amazon automation, internet coaches, gurus, and Amazon FBA.
Whatever the size of your business, getting your finances in order is critical to the survival of your business. Contact us today to schedule a free consultation with one of our e-commerce accountants to learn how we can help you.
