By far, one of the biggest challenges facing e-commerce companies today has to do with the uncertain nature of the entire enterprise.
Nobody could have predicted the onset of the COVID-19 pandemic in 2020. One side effect of this was that e-commerce ordering across all verticals shot up overnight as in-person shopping became impossible in many areas. This led to inventory issues and other supply shortages. Now that things are opening back up again, everything is slowing back down. Because of factors beyond your control like this, not to mention the potential of a recession, it is essential to have control of your business processes whenever possible.
Therefore, if you want to make sure that your bookkeeping is in order to help empower your e-commerce business as much as possible, there are a few key elements that you should keep a watchful eye over moving forward.
If your e-commerce store is hosted on one of the major industry platforms like Shopify, you're already no doubt familiar with the "necessary evil" of merchant fees. But you shouldn't neglect them when it comes to your bookkeeping efforts.
Remember that merchant fees are a part of your net sales, not your gross sales. You can show this in your books by making a note of the gross sale, then labeling the difference between that and the final deposit amount as the fee.
Shipping Costs and Your Shipping Options
If your shipping costs are not already integrated with your e-commerce platform (as they are with some of the bigger options), you must not neglect things when it comes to the records you keep. The amount you actually charge a customer for shipping won't line up 100% with the amount you pay to ship the item. You need to be able to make sense of those discrepancies so that there are no errors in your records that only get worse over time.
Budgeting and Forecasting Returns
Budgeting is important for a host of reasons in the world of e-commerce, especially when it comes to managing cash flow. But budgeting and forecasting help you come up with the types of strategies you need to have in place to better prepare yourself for the future. Even if you're entering into a period of economic uncertainty, you can still make sure that your finances are aligned with your organization's goals as much as possible.
Inventory Management Timing
Naturally, you don't want to have so much product on hand that you're paying to house items in a warehouse or other facility indefinitely. But at the same time, you don't want to get caught in a situation where a sudden surge in interest depletes your reserves, preventing you from making sales that are rightfully yours. Work on the timing of your inventory management processes and make sure that, based on historical data, you have the inventory you need, when you need it, as often as possible.
Sales Tax Regulations
Equally important is your ability to keep track of ever-changing regulations regarding sales tax. Never allow yourself to believe that tax money somehow equals revenue. Most e-commerce platforms that you use just collect the sales tax and deposit it into your account. At that point, it becomes a liability that you owe the government come tax time. Stay up-to-date on any regulations and changes that you need to be aware of that impact the amount of money that needs to be collected and what payments you need to make (and when) to stay compliant.
Keep Separate Personal and Business Finances
For small business owners in particular, the importance of keeping separate personal and business finances simply cannot be overstated.
Yes, you may have used your own money to fund your efforts in those early days. However, you shouldn't mix the two worlds together, especially when it comes to record keeping. Keep a separate business bank account and use that for all e-commerce business-related cash flow purposes.
Why Budget Forecasting Matters
To condense the idea down to its bare essentials, a budget forecast is essentially a model that you use to try to determine what your budget will actually achieve. In other words, you're using historical information to predict what you can realistically do during a similar period in the future. Again, this gives you more than just gut instinct to use when making decisions - it's actionable information that you can utilize to make the most informed decisions possible given the circumstances.
The Bottom Line
In the end, both entrepreneurs and consumers alike love e-commerce because of the newfound freedom and flexibility it brings with it. However, that comes with a number of potential costs and the uncertainty of the last few years (and potentially the next few) is at the top of that list. That's why you need to take steps to make sure that the bookkeeping is in order for your e-commerce business today - it may mean the difference between success and failure tomorrow.
To find out more about the financial elements you should be carefully monitoring to help empower your e-commerce company or to speak to someone about your situation in a bit more detail, please contact one of our e-commerce savvy industry experts today.