Accounting is a crucial part of running a business. But, most business owners despise accounting, and many of them commit mistakes that can lead to a business's downfall. Accounting should be precise and timely, which is why most businesses outsource these tasks to professionals.
However, if you're running a small ecommerce business, then accounting shouldn't be that difficult for you to handle. To that, here are some typical accounting blunders that all business owners should avoid.
Using the wrong accounting methodology
It's natural for business owners to choose an easier accounting solution. Cash accounting could seem simpler when your company is first starting out. When money is exchanged for goods, that's when to record it in your books. But as your business expands, you need to look further regarding your finances.
Accrual accounting is recommended for every business. In this methodology, you write down all sales and expenses incurred, whether you have yet to receive the cash. This way, you’ll have a clearer view of your financial data, which will help you make crucial decisions for your business.
Throwing out receipts from financial transactions
Many small business owners throw out their receipts by accident or because they don’t think they need them. Yet, these receipts are important pieces of proof for expense tracking, sales management, and even tax deductions. A pile of receipts can be confusing, so as much as possible, record them once they are in your hands.
But, of course, we understand that you have a lot on your plate, and you can't attend to recording every transaction you have on hand. So we recommend creating a schedule. Doing it weekly would be most suitable, but if you can't, you can record on a monthly basis.
Furthermore, take advantage of applications that make the process easier for you. For example, there are accounting apps that let you snap a photo of your receipts, and you can integrate it into your accounting software so you instantly have a record of them. With less time and effort you can get more things done.
Improper inventory management
Your inventory is a factor that affects the profit and loss statement, balance sheets, cash flow forecasting, and other financial reports. Many things could go wrong with inventory, like miscalculating the cost of goods, sales made, returns, and refunds. These things can make your reports inaccurate.
Any mistake you haven't noticed or corrected in the previous accounting period will be carried over to the next accounting period. Counting your inventory from time to time is a good practice for inventory management. Investing in software with inventory management will be better if you have multiple businesses.
Skipping bank reconciliation
Bank reconciliation is the process of checking if your business's balance sheets match the funds in your business bank account. Reconciliation should be done in regular intervals to ensure your business funds are secured and to identify any discrepancies.
Most small business owners skip the reconciliation process, which can greatly affect their cash flow. If misplaced or missing funds are discovered too late, it can cause the decline of your business.
Improper collection of sales tax
The good news for Shopify sellers is that the ecommerce platform collects sales tax for every sale. However, it's not an automatic thing. It is the seller's responsibility to set up sales tax collection. If you are in the United States, there are different sales tax rates across different states.
You need to identify the correct sales tax and set it up on your Shopify account so it can collect the proper amount for you. Sales tax should then be reported and paid to the right tax collection agency. Improper collection of sales tax can cause penalties. This unnecessary spending on fines and penalties can cause negative cash flow, which affects your business.
Guessing your numbers
Accounting with Shopify should not be guesswork. Some Shopify store owners rely on their intuition when it comes to the state of their finances, but accurate financial data is needed to know the state of your business's health. You can't predict that the high sales will go on for months or that the sales drought will eventually pass without proper data.
If you don't know whether or not you are making revenue, your inventory management will be in chaos. You'll have no idea which products generate the best sales and might even invest in the wrong ones. Most decisions in ecommerce businesses are based on data and numbers. Guessing your accounting isn’t the road to success.
Doing manual accounting instead of getting a cloud-based accounting software
When you run a small online business, you think of ways to increase your revenue and lessen your expenses. Many new business owners opt to do manual accounting in spreadsheets. If you're using spreadsheets, your accounting solution is terribly outdated. The more your business grows, the less time you’ll have to encode data and make business health reports.
There are small business accounting software that can help you accurately manage your finances so you can eliminate guesswork. Some of these accounting software are free and can do basic accounting for you. So ditch the traditional method and take advantage of the accounting tools available.
Forcing yourself to do accounting
Saying that business accounting is messy and tedious is an understatement. It is preferable to engage a professional accountant to handle accounting for your company if you have minimal experience with various accounting tasks.
There are accountants whose expertise lie in Shopify and other ecommerce businesses, so you are sure your business finances are in good hands. However, if you are already comfortable with accounting and just need help organizing your books, hiring a bookkeeper or getting bookkeeping software is a wise investment.
4 Shopify Accounting Software You Should Consider
Your financial management will be easier if you make an investment into a proper accounting system. Fortunately, there are accounting software that integrate with Shopify directly, so the data from your seller account are recorded instantly. Here are some of the accounting tools and an overview of their features.
QuickBooks Online
- Starting price: $15/month
- Invoicing
- Time tracking
- Accounts payable
Shopify POS
- Starting price: $29/month
- Cash and order management
- Business reporting
- Staff accounts
TaxCloud
- Starting price: $9/month
- Sales tax tracking and collection
- Tax filing and remitting
Wave
- Starting price: Free
- Income and expense tracking
- Payroll features
- Receipt scanning via mobile app
There's a long list of accounting software for Shopify. Some even have advanced features to make fully automated workflows. Experiment with them to see which one fits your needs best.
Top Features to Look for in an Accounting Software
Looking for accounting software will not be a problem; you have endless options available to use. However, they are not all the same. Some have advanced features that will help you run your business. Here are features you should look for if you want reliable accounting software.
Compatibility with other applications
There are thousands of widgets and extensions available to make running an ecommerce business more convenient. Make sure to find an accounting software that is compatible with as many applications as possible. This will help you perform functions better without having to work and transfer data to multiple programs at a time.
Top notch security features
You put your customers information in accounting software when you create invoices and send them billing statements. As a business owner, you must be responsible for your client’s personal information. Invest in software with a high level of security to prevent leaks and data breaches.
Regular updates
Tax laws change and regulations in the online marketplace. Your accounting software should catch up with these changes. Make sure the software you choose updates regularly to improve its performance. An outdated software can be error-prone which affects your business finances.
Customization and scalability
Get software that you can customize to your needs. Don’t let your business be the one to adjust to its functions. The software is supposed to make handling your finances easier so settle for no less. Furthermore, the accounting software should be able to adapt to your business.
If it makes finance management easy when you are still a small business, it should still do the same when your business grows. Using one software for your business saves you a lot of time and resources in the long run. Data transfers can be time consuming and it can cause delays that can affect your business.
Final Thoughts
Money makes the business go around. Finances keep your business functions running so you can continue your operations and generate income. That is why proper accounting is essential whether you have a big enterprise or a small business.
If you want accurate accounting to ensure the health of your business, Unloop is the accounting solution you've been looking for. We have different services ranging from taxes, forecasting, bookkeeping, and payroll. So talk to our experts by booking a call with us today.