Bookkeeping is the process of recording financial transactions for a business.
Bookkeeping is a subset of accounting and is used to make sure financial transactions are correct and up to date.
Some examples of the tasks that fall under bookkeeping include
- Recording payments to suppliers
- Producing invoices
- Recording customer payments for invoices
- Handling merchant fees
- Maintaining bank accounts
- Completing payroll
- Recording loan payments
- Monitoring depreciation of business assets
- Generating financial reports
Many eCommerce businesses use automated or semi-automated bookkeeping tools that integrate with their website and eCommerce platforms to keep track of sales, payments, refunds, and inventory.
Why eCommerce Bookkeeping is Important
You’re running your eCommerce site as a business, not for fun, so it’s important to keep track of its success. You can only do this by having a clear view of your finances.
Having a proper bookkeeping process in place is important for:
Calculating profits and growth
You may be making sales but without your bookkeeping records, you have no real idea of how profitable your business really is.
How fast is your revenue increasing? How much are your outgoings? What is your profit margin? Where can you make savings?
You can answer all these questions and become more profitable and successful by monitoring your figures through bookkeeping
The last thing any business needs is to pay a huge and unexpected tax bill. You’ll need to pay taxes throughout the year so it’s important to put money aside to cover this outgoing.
Accurate bookkeeping and financial records can not only help you to calculate how much your tax bill will be. You can also keep track of deductions to help you reduce your tax bill and keep more of your profits.
Identifying fraud and errors
Most eCommerce checkout software has systems in place to flag potentially fraudulent transactions, but you shouldn’t rely on this alone.
Additionally, everyone makes mistakes. If you’ve accidentally listed a $100 product on your site as $1, you’ll want to fix the error before it costs you a lot of money. Keeping your books up to date will help you to find any errors or discrepancies quickly to minimize the damage.
Supporting evidence to apply for business loans
If you want to apply for a loan for your business, you’ll need detailed financial records that show your cash flow and profit and loss over time.
Proper bookkeeping is important evidence of the financial state of your business over a given time period.
Budget planning and making business decisions
It’s important to have a clear picture of your finances and how your business is progressing. This helps you to estimate how much capital you’ll need in the future and ensures your outgoings aren’t higher than you can support.
Basic eCommerce Bookkeeping
If you don’t have the budget to hire a bookkeeper, you’ll need to keep track of your finances yourself. There are several small business bookkeeping solutions that can help you to do this but you should understand the basic records you should be keeping yourself:
- Keep all receipts, invoices, and other relevant financial documents and emails in a specific folder and date them.
- Take note of how much money your business has available in your bank account, as cash, and as credits in business service accounts.
- Review your expenses weekly and make sure you’re sticking to your budget. This is particularly important if you have variable expenses, for example, if you’re running paid ads.
- Calculate your sales, expenses, cash flow, and other key figures monthly and run reports to keep track of trends.
- Review your expenses monthly and identify areas where you might be able to make savings by switching to a different supplier or negotiating a discount.