If you have recently decided to start an online business or migrate your physical store to online platforms, you are probably already acquainted with online business accounting. But it's also understandable if you are not as most new online sellers prioritize their business's daily operations more than anything else—even something as important as accounting.
As a business owner, cash flow is what keeps your business afloat. This is one of the key indicators that your online business is profiting or losing money. One way for you to keep solid track of it without missing anything is through online business accounting.
If you're still not familiar with how online business accounting works, along with the different software you can use and their corresponding benefits to your business, then this article will serve as a comprehensive guide. Read on to learn more about the process and why you must invest in your accounting.
Knowing The Difference Between Bookkeeping and Accounting
Running a business is more than just knowing what and how to sell, it's also learning about the technicalities that come with it. Aside from learning how selling online works, it would help to familiarize yourself with different accounting terms.
Two of the most common terminologies you may come across are accounting and bookkeeping. Although these two terms are associated with cash flow and are usually used interchangeably, they are different processes.
Accounting pertains to the overall system of processing information derived from bookkeeping. Thus, accounting refers to the entire process, while bookkeeping is just a segment of it.
Bookkeeping refers to the process of organizing financial data while accounting focuses on its interpretation. Looking at the workflow, the process starts with bookkeeping first, followed by accounting.
So if you want your books to be accounted for seamlessly, you should first see to it that your business's financial records are organized properly. Your cash flow will not tally properly as a result of unclear and unorganized data.
What is Online Business Accounting?
Online business accounting refers to two interconnected processes. For example, one pertains to accounting for online businesses. It can also mean using internet technology to carry out the accounting process. Although these are two very different meanings, you can integrate these by opting to use online business accounting software in your business’s accounting methods.
Let's focus on online accounting software. You may be familiar with traditional accounting practices wherein you have to hire a bookkeeper or accountant and meet with them. But gone are those days when you had to schedule meetings with your accountants and give them your business's financial data personally.
Online accounting (or e-accounting) completely removes the need to meet with your bookkeepers or accountants personally since it uses internet technology to help perform accounting functions. Essentially, this means that all of your accounting operations are done and saved online through the cloud, making it more accessible for you, your team, and your accountants.
But don’t worry, e-accounting can do everything traditional accounting can do. If you have an online business, it’s best that you also keep your accounting online. This way, the process will be more seamless, efficient, and accurate.
How Does Online Business Accounting Work?
Before knowing how online business accounting works, you must first learn the basics. Learning the basics means you have to be familiar with how traditional accounting works.
Accounting starts with partnering with the right accountant or accounting firm. From there, schedule a meeting to discuss your business's books personally. But before going to that meeting, you should have all of your financial data printed and ready. These are the files you're going to hand over to your accountant. They will then organize the data accordingly and analyze them depending on the financial statements you will need.
Online business accounting works almost the same way. However, the main difference is you don't have to personally meet with your bookkeeper or accountant to hand over the data. You're going to save so much time and energy as now, you can have your books set up and accounted for through phone and email.
Some accountants and firms use online accounting software to have a smoother process. But, this is also the best choice for you especially if you don't have the budget to hire an accountant to do everything for you.
You can choose to partner with an online third-party service to handle your books. Usually, these services use QuickBooks Online and A2X, which are the gold standards in online accounting. With these, you can access your financial statements any time you want to.
Benefits of Online Business Accounting Services
Now that you are familiar with what online business accounting is, the terms associated with it, and how it works, the next question to ask is, "What's in it for me?" Knowing the benefits of online accounting services can help you decide whether this kind of technology is suited to you or not. With that said, here are some ways how using online accounting for your business can help you.
More accessible
Suppose you are selling online on Amazon, Shopify, or other e-commerce platforms, it would only be logical that you do all of your processes online too! Given that most of your operations are online, it’s easier to consolidate information this way.
Perhaps you’ve been in situations wherein you had to do a quick run-through of how well your business was performing. These instances usually happen when you are thinking about scaling your business and planning to let investors in. You have to show them that you're profitable, and accurate data will back this up. Accessing your accounting data immediately would be impossible, especially if you do your books traditionally. However, with e-accounting, you may access your books from your phone or computer, and you can instantly give an updated and accurate status of the business’s finances!
Automation of tasks
Picture this: you have your cash flow and all your other numbers online. Then you either print these data or write them down manually on your ledger so you can submit them personally to your bookkeeper and accountant. Sounds tiring right? Imagine doing that on top of all your other tasks! Add the fact that finishing your books is not only time-consuming, but it's also time-sensitive. These data have to be consolidated accurately for them to be analyzed properly.
Of course, the accuracy of your financial statements will depend on how well you can keep track of your business's cash flow. With online accounting and bookkeeping services, you don't have to scramble through dozens of purchase receipts for your inventory or check how many sales went in each of your revenue streams for that month.
Aside from these, you can set up trigger payments for payables, which are directly logged into your system. Doing this will be so much more efficient, not just for you but for your whole team as well. Research shows that automating tasks makes things more efficient and reduces the chances of making mistakes. So don’t take the risk of getting your financial statements wrong just because of human clerical errors.
Reduced paperwork and a sustainable system
If you have an online business, you probably have all of your customer's order information, along with their data, on your database. It only makes sense to have all of your business's data online, and that should include accounting work.
Unfortunately, aside from accounting being tedious, it also deals with a ton of paperwork. You will literally deal with heaps of documents detailing your financial data.
Printing all of these and noting them by hand is not only time-consuming but also costly. In addition, you would have to include office supplies such as paper and printer ink in your expenses.
Although it might not seem like it’s a lot of money, they can amount to a considerable price when added up. . These are the expenses that you can reduce if you switch to online business accounting.
Aside from this, most businesses, whether online or physical, are now practicing sustainability in the workplace. There are numerous ways on how you can adapt to sustainability, but if you want to do something that can make a considerable impact, go digital.
By going digital, you can proudly say that you're a sustainable and environmentally-conscious online business too! Nowadays, consumers are more aware of a brand's values and the practices that they support. Purchase decisions are not just all about the product anymore, but also about the brand's values. So take advantage of online accounting to further reduce costs and connect with your customers.
Room for scalability
You might consider your business as "small'' today. But in a fast-growing platform such as e-commerce, you will never know how quickly you can grow in just a few weeks. If you're stuck on traditional accounting to sort your financial data and have just one bookkeeper or accountant to help you out, it may not be efficient in the nearby future
When your business is growing, your sales are not only skyrocketing—your inventory is too! Since scaling entails catering to a larger number of SKUs or ordering more stock, you're going to have to deal with a lot of cash coming in and out.
In addition, you're ordering more from your manufacturers, so you will also make additional payments here and there. As a result, it will be a lot harder for you to keep track of these manually once you've scaled up.
Scalability won't be a problem when you partner with the best online business accounting service. For example, suppose you unexpectedly receive a lot of orders. In that case, you won't have to think about how you can keep track of all the money coming in and out since your processes are automated and synced together.
Even if you're not at your desired business size at the current time, it's one less problem to worry about in the future, all because you made the switch to online accounting services for small businesses today!
Get an accurate and real-time overview of your finances
One of the main benefits of choosing cloud over traditional accounting is its accuracy and the ability to give you a real-time overview of your business's financial data. For example, how many times do you check your sales and expenses tally once a month? Most companies that still use traditional accounting may only be provided with this data at the end of the month.
But if you want to be updated on how well your business is doing, it’s best to check your daily sales against your expenses. Because traditional accounting methods are fairly limited, it may take at least a week to provide you with an almost accurate financial status.
With e-accounting, you are assured that you won't only get the real-time position of your finances, but that they’ll be accurate as well; as we mentioned earlier, automated tasks are less prone to errors and are generally more accurate.
Accurate and updated data play a crucial role in making business decisions. This way, you are not making rash decisions that are not supported by data. When you use e-accounting, you are already provided with an updated overview of your business's finances, making it a lot easier for you to adjust if needed.
How to Choose the Best Online Accounting Service For a Small Business
With the rise of e-commerce businesses comes numerous online accounting services. Now that you know how online accounting works and the advantages it can bring to your business, the next thing you should focus on is how to choose the best service that will cater to your needs. With that, here are some key points you should consider.
Monthly revenue
Before signing with an online small business bookkeeping service, you should first have your monthly revenue data with you. Online accounting services base their pricing on how much your business earns.
For example, a company is considered "small" in the US if its average annual revenue is about $44,000 or around $3,700 monthly. But this can further be extended to the $20,000 per month range, and it will still fall under the small business classification.
It’s reasonable for online accounting services to price services based on your earnings because their workload will depend on your business's revenue. It is expected that the more money your business makes, the more work that needs to be done.
Number of accounts and transactions included in the package
Aside from your monthly revenue, an online accounting service may also charge you depending on the number of accounts and transactions you will let them handle. The package inclusions vary depending on the accounting company, so it's best to clear this up. Some charge per account enrolled in the service, while others offer unlimited transactions, with the pricing depending mostly on your monthly revenue.
If you're a small business, you might think it best to start working with an accounting service that charges per account or transaction. Although this is a good way to start, especially if you have a fairly limited cash flow, it might not be sustainable and scalable.
So even if you are just starting and don't have much cash to work with, you will eventually realize that it is a lot cheaper for you to invest in a service that offers unlimited transactions than to opt for those that charge per transaction.
Technology and security
Online accounting services use software that will make bookkeeping and accounting activities a lot easier to facilitate. There are different accounting software available, and each of them has its set of pros and cons.
Before hiring them, ask what kind of software they use to do your books and financial statements. You can look these up and check on their pros and cons and other features.
Aside from seamless syncing and accurate computations, it would help if you also considered software’s security. Although the accounting service will help you set up the software so it's integrated with your business's systems, the security of your data will depend mostly on the software.
It's understandable not to be too familiar with the various accounting software in the market. Just know that QuickBooks Online with the A2X integration is an excellent choice.
Quickbooks Online is the gold standard for cloud-based accounting of small to large-sized businesses. When you choose to work with an accounting service that uses Quickbooks Online, you can easily track your cash flow anytime and anywhere. In addition, they are one of the most secure accounting software, with your data backed up safely on the cloud.
The integration of A2X, on the other hand, allows you to easily connect your e-commerce platforms such as Shopify and Amazon to Quickbooks. So if you've made a sale on Amazon, you don't have to go to Quickbooks manually to log that sale. Instead, A2X seamlessly syncs that over, making the process more efficient and accurate!
Before choosing an online small business accounting service to work with, see to it that they can help you integrate this software into your system.
Customer service
Accounting is a complex process, especially if you don't have any background in it. With all these technicalities in software and process flow, it might be too overwhelming for you to learn it all in one go. There is a significant learning curve but this shouldn't be a problem for you since an excellent online business accounting service also comes with exceptional customer service.
It's already a given that there are dozens of accounting services you may choose from. However, not every one of them can guarantee to guide you from onboarding your files up until you receive your financial statements.
Since this is a fairly complicated and crucial process, you must keep in touch with someone from the team. Therefore, when choosing an accounting service to work with, ask if they have experts you can ask questions to if you need to clarify some things. This line of communication between you and their team can help you understand more of how the process works, and how you can further maximize it to your advantage.
Will You Still Need The Services of An Accountant?
The short answer is yes and no. Yes, you'll need to hire an accountant for filing taxes. But working with an online bookkeeping service expedites the process. Most online accounting and bookkeeping services do not file your taxes since you have to work with a CPA firm for these. What these services do, however, is produce the most accurate financial statements with the help of the different accounting software mentioned above.
Unloop is one of these online accounting services that recognizes how hard it is for online sellers to find an accountant within their budget. With that, our services don’t stop after we’ve provided you with your statements; we also partner with CPA firms at a discounted partner rate, so you won't have to worry about finding one.
Final Thoughts
Accounting is a complicated yet crucial part of any business, may it be an online or physical store. However, online businesses may have difficulty in compiling all of their sales and generating reports, having them analyzed for interpretation, and filed. This is because selling on multiple online channels makes it harder for you to organize your financial data. As an online business owner, you need to recognize this bottleneck and solve it right away.
Getting accurate data about your business's finances is one way for you to make sound decisions. This way, you can base any decisions you make now and in the future on actual data derived from your business. Never second guess your decisions when you work with a reputable online business accounting service like Unloop.
Unloop offers unlimited transactions and access to Quickbooks Online and A2X. Get all of these and more when you sign on with us! Focus more on your business, and let us handle your books. Schedule a call with us today!