Are you set to go all in and start a full-time e-commerce business… or thinking about finding out how well you can do from a side hustle?
You may be busy thinking about marketing, shipping, branding and all the rest. However, the financial management of your business, no matter how large you want it to become, is important to get right from the start.
Here are six things an e-commerce accountant will tell you to keep in mind when you launch your online sales business:
1. Keep your earnings separate
Part of operating an e-commerce business involves setting up an ABN, reporting your earnings and potentially paying tax.
Even if you are only bringing in a few thousand dollars per year, it makes sense to create a separate bank account from day one. This way, you will have no stress when it comes to identifying your business income and expenses at the end of the financial year.
2. Look for financial patterns
It is difficult to benchmark your success during the first year you are in business, but you should keep a record of your sales and profits each month. This will help you identify the times you do well and the periods when your customers are less active.
Having this information will help you plan for the seasons to come. When you are ready to work with an e-commerce accountant and/or bookkeeper, they can use this information to help make sure you have the cash you need, when you need it.
3. Work with a budget
Aim to set yourself some financial limits around spending so you can actually put some of the business revenue aside for yourself.
Some e-commerce business owners get so excited about the money rolling in that they fail to notice how much is going out. As a result, they can end up with unmanageable debt.
Where possible, minimise non-necessary expenses and luxuries, especially in the early days. Focus your spending on areas that will deliver return on investment. If you end up with surplus cash, you can ‘treat’ the business (or yourself) to something nice.
4. Set aside money for tax
Paying tax in Australia is unavoidable, especially if you have an official business. A common mistake new e-commerce business owners make is failing to take the time to understand how tax will be calculated against their earnings.
As a very general rule of thumb, if you put 20-25% of your revenue aside each month, you will have more than enough money to pay your tax bill. You can repurpose any money left over from these savings to grow your business.
The tax you pay doesn’t directly correlate with revenue because you of course have to spend money to make money. Again, it makes sense to work with an e-commerce accountant who can help you estimate tax and be ready to pay your bill.
Don’t forget about GST either. If you’re charging your customers GST, the money needs to be put aside so you can transfer it to the ATO each quarter or monthly.
5. Have an inventory management strategy
One of the challenges of operating an e-commerce business is managing inventory.
You don’t want to wind up with more products than you can sell, and you don’t want to spend too much on things like storage.
Even if you’re operating out of your own garage, work with an e-commerce accountant to create a strategy that will help you fund the purchase of inventory and hit the right balance of stock.
And don’t forget your accountant will require your closing stock figure by 30 June.
6. Go digital
Nowadays, you can connect so many business systems to your online financial platform.
Shopify, as an example, can be integrated with Xero and MYOB so you can keep track of sales and stock without the need for tedious data entry. You can also use these platforms to stay on top of PAYG tax on behalf of your team and to track your revenue/expenses.
An e-commerce accountant can help you to get everything set up and integrated. This will give you access to real-time financial information and make it so much easier to review and forecast your success.
Start your e-commerce business on the right foot with the help of a specialist accountant. Reach out to the experts at Crest Accountants today.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.
