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Question after question and the endless desire to seek the right answers is normal for new Amazon sellers like you. One difficult inquiry you’ll encounter is about taxes, a topic that not everybody is interested in. Still, you need to understand this because it is a huge part of your Amazon store management.

To give you a little background about Amazon taxes, we’ll list five of the most frequently asked questions newbies have. We’ll also include the assistance you can get from an Amazon accounting and bookkeeping agency to know what you can expect. Let’s start!

1. What is Amazon tax?

When talking about Amazon tax, two important things will come up, the Marketplace Tax Collection and the 1099 Amazon tax form. The Marketplace Tax Collection came when the Marketplace Facilitator Law was enacted, which mandates that facilitators like Amazon collect and remit sellers' sales tax

Meanwhile, Form 1099 is the information submitted by Amazon to the Internal Revenue Service (IRS) every year to report the gross sales income of sellers who are above $20,000 unadjusted Amazon sales income and have more than 200 transactions. 

2. What are the different Amazon tax forms?

Aside from the Form 1099, here are the other forms on Amazon that are meant for different types of sellers:

  • W-9: Amazon mandates that all US taxpayer sellers go under a tax interview to accomplish the W-9 form that will contain your basic information and your TIN.
  • W-8BEN/W8-BEN-E: All sellers undergo the tax interview, even those who aren’t US taxpayers and are foreign sellers. Non-US taxpayers and foreigners should accomplish the two forms: W-8BEN or the Certificate of Foreign Status and W-8-BEN-E declaration of foreign entity.
  • Form 1042S: Amazon and the IRS still track the income of foreigners through Form 1042S.

3. How can I find my Amazon tax forms?

You can access Amazon 1099 online through taxcentral.amazon.com by logging into your seller account. The form is readily available beginning January 31 of each year or the day after January 31 if it falls on a holiday. 

Amazon also allows the sending of the file via email and even a hard copy through delivery. Just make sure to provide the correct addresses in your tax interview. To avoid missing the hard copy through your mail, always update the address details if there are any changes. 

Meanwhile, you can get a preview of the forms W-9, W-8 BEN, W-8BEN-E, and 1042S on the tax interview page.

4. What do I need to prepare for the tax interview?

The Amazon tax interview will involve questions and answers you’ll accomplish on your seller account on Amazon Seller Central.

US sellers need to prepare their business TIN, while non-US sellers must prepare an income tax identification number issued from their country. If you are part of the people and groups who are tax-exempt, you need to prepare your tax-exempt certificate too. 

amazon tax form

5. How can I use the Amazon 1099 form?

You can use Amazon 1099 for your income tax return. A tax expert can deduct refunds from the unadjusted gross sales for you to pay taxes based on the actual money you’ve earned.

Aside from this, there is plenty of essential data collected by Amazon like sales fulfilled by sellers, sales through Fulfillment by Amazon, shipping payment, gift wrapping payment, and more! When included in the books and reports, these are helpful data that can give you a full view of your business.

Bookkeeping and Accounting Assistance

It is best to partner with experts if you will use the Amazon 1099 for your income tax return. Bookkeepers and accountants can use the data Amazon gathers to further understand your business finances. In doing so, you can reap these benefits:

Checking Amazon 1099 for income tax purposes

Filing income tax returns involves monitoring your income and expenses throughout the tax year, including details from your Amazon 1099. You can skip the worry of paying more than you should because they will deduct the refunds from your gross income jotted on Amazon 1099. Bookkeepers will ensure all details in your books are accurate.

Accounting and bookkeeping software integration

By keeping all your data in a single software, tracking will be easier. A bookkeeping and accounting agency can integrate their software with Amazon to extract data the platform provides, like inventory information, sales, shipping costs, and fulfillment charges.

Making sense of the numbers through reports

After all the data is in the books, an Amazon accountant and bookkeeper will work together to create financial reports. Report generation is easier because the agency has reliable bookkeeping and accounting software. As a business just starting out, you should check your store’s financial health as often as possible to enact necessary adjustments or continue best practices. 

Partner With Unloop!

As an Amazon seller, taxes and obligations will be a part of your life. This includes understanding the different Amazon tax forms, what’s included in them, which one you need, and how to accomplish them.

It is also important for you to know that you can make the most of the financial data you get from Amazon with the help of a bookkeeping and accounting agency. At Unloop, we can help you file your income tax returns, integrate with accounting and bookkeeping software, and make sense of your data through reports. So book a call with us now to learn more about how we can help you manage your Amazon business!

5 Amazon Tax Form FAQs and Agency Assistance to Make Sense of the Numbers
Watch Now

Question after question and the endless desire to seek the right answers is normal for new Amazon sellers like you. One difficult inquiry you’ll encounter is about taxes, a topic that not everybody is interested in. Still, you need to understand this because it is a huge part of your Amazon store management.

To give you a little background about Amazon taxes, we’ll list five of the most frequently asked questions newbies have. We’ll also include the assistance you can get from an Amazon accounting and bookkeeping agency to know what you can expect. Let’s start!

1. What is Amazon tax?

When talking about Amazon tax, two important things will come up, the Marketplace Tax Collection and the 1099 Amazon tax form. The Marketplace Tax Collection came when the Marketplace Facilitator Law was enacted, which mandates that facilitators like Amazon collect and remit sellers' sales tax

Meanwhile, Form 1099 is the information submitted by Amazon to the Internal Revenue Service (IRS) every year to report the gross sales income of sellers who are above $20,000 unadjusted Amazon sales income and have more than 200 transactions. 

2. What are the different Amazon tax forms?

Aside from the Form 1099, here are the other forms on Amazon that are meant for different types of sellers:

  • W-9: Amazon mandates that all US taxpayer sellers go under a tax interview to accomplish the W-9 form that will contain your basic information and your TIN.
  • W-8BEN/W8-BEN-E: All sellers undergo the tax interview, even those who aren’t US taxpayers and are foreign sellers. Non-US taxpayers and foreigners should accomplish the two forms: W-8BEN or the Certificate of Foreign Status and W-8-BEN-E declaration of foreign entity.
  • Form 1042S: Amazon and the IRS still track the income of foreigners through Form 1042S.

3. How can I find my Amazon tax forms?

You can access Amazon 1099 online through taxcentral.amazon.com by logging into your seller account. The form is readily available beginning January 31 of each year or the day after January 31 if it falls on a holiday. 

Amazon also allows the sending of the file via email and even a hard copy through delivery. Just make sure to provide the correct addresses in your tax interview. To avoid missing the hard copy through your mail, always update the address details if there are any changes. 

Meanwhile, you can get a preview of the forms W-9, W-8 BEN, W-8BEN-E, and 1042S on the tax interview page.

4. What do I need to prepare for the tax interview?

The Amazon tax interview will involve questions and answers you’ll accomplish on your seller account on Amazon Seller Central.

US sellers need to prepare their business TIN, while non-US sellers must prepare an income tax identification number issued from their country. If you are part of the people and groups who are tax-exempt, you need to prepare your tax-exempt certificate too. 

amazon tax form

5. How can I use the Amazon 1099 form?

You can use Amazon 1099 for your income tax return. A tax expert can deduct refunds from the unadjusted gross sales for you to pay taxes based on the actual money you’ve earned.

Aside from this, there is plenty of essential data collected by Amazon like sales fulfilled by sellers, sales through Fulfillment by Amazon, shipping payment, gift wrapping payment, and more! When included in the books and reports, these are helpful data that can give you a full view of your business.

Bookkeeping and Accounting Assistance

It is best to partner with experts if you will use the Amazon 1099 for your income tax return. Bookkeepers and accountants can use the data Amazon gathers to further understand your business finances. In doing so, you can reap these benefits:

Checking Amazon 1099 for income tax purposes

Filing income tax returns involves monitoring your income and expenses throughout the tax year, including details from your Amazon 1099. You can skip the worry of paying more than you should because they will deduct the refunds from your gross income jotted on Amazon 1099. Bookkeepers will ensure all details in your books are accurate.

Accounting and bookkeeping software integration

By keeping all your data in a single software, tracking will be easier. A bookkeeping and accounting agency can integrate their software with Amazon to extract data the platform provides, like inventory information, sales, shipping costs, and fulfillment charges.

Making sense of the numbers through reports

After all the data is in the books, an Amazon accountant and bookkeeper will work together to create financial reports. Report generation is easier because the agency has reliable bookkeeping and accounting software. As a business just starting out, you should check your store’s financial health as often as possible to enact necessary adjustments or continue best practices. 

Partner With Unloop!

As an Amazon seller, taxes and obligations will be a part of your life. This includes understanding the different Amazon tax forms, what’s included in them, which one you need, and how to accomplish them.

It is also important for you to know that you can make the most of the financial data you get from Amazon with the help of a bookkeeping and accounting agency. At Unloop, we can help you file your income tax returns, integrate with accounting and bookkeeping software, and make sense of your data through reports. So book a call with us now to learn more about how we can help you manage your Amazon business!

Read more

Accounting is an essential part of any business. Whether you're an online seller, a small business owner, or the head of a big company, making sense of your business numbers through thorough accounting will show the state of your business's financial health.

However, finances are not many people’s strong suit, and selecting the best expert to assist you is essential. For example, do you need an ecommerce accountant or a CPA? Additionally, are these two professionals even different? This blog post will help you decide who you should hire. We'll differentiate their roles, so you’ll know which professional is suitable for your ecommerce business.

Spotting the Difference: Ecommerce Accountants vs. CPAs

Many people use the term accountant and CPA interchangeably. The confusion is understandable since both jobs involve accounting. But the two roles differ greatly from one another. Although not all accountants are CPAs, all CPAs are accountants.

To help you tell the two apart, consider these significant differences.

Training and Licensing

Licensure is the primary distinction between an accountant and a CPA. Accountants don't need to take and pass a state-mandated exam to offer their services. However, before becoming a CPA or a certified public accountant, they must first obtain a license.

Furthermore, before CPAs are qualified to take their licensing exam, they should earn a bachelor's degree in financing and accounting. They must also complete rigorous training with specific hours in advanced accounting, auditing, and business courses.

Accountants can have a bachelor's degree in related courses like finance, business management, and accounting. From there, they will gain experience and training from school internships. After getting their diploma, accountants can expand their careers by getting certifications from accredited accounting organizations.

Knowledge on Taxation

There is no doubt that both professionals can help you with tax planning, returns, and filing. These basic tax services are covered in their training. However, when it comes to taxation laws and codes, a CPA has a more in-depth understanding.

Also, only CPAs can represent a business in front of the IRS. There are times, especially with big companies, when a business gets audited. Only CPAs can answer for your business and sign tax documents when necessary.

Code of Ethics

A governing body handles certified public accountants. Naturally, organizations have strict regulations and requirements to follow. The American Institute of Certified Public Accountants establish these professional standards, which fall under five broad categories and include:

  • Responsibilities
  • Due care
  • Public interest
  • Integrity
  • Objectivity and independence

Fiduciary Responsibility

A key CPA responsibility that accountants cannot do is act as fiduciaries for their clients. This means that an individual or an organization is legally allowed to represent and has authority on behalf of their client's best interest.

If you need representation in front of banks, board members, and government auditors, you should hire a licensed CPA.

Key Roles of Accountants for Ecommerce Businesses

Although ecommerce accountants don't have the exact detailed and rigorous training as CPAs, they still have significant roles to play that could benefit ecommerce business owners. Here are some duties they do so you can see if they are suited for your business.

Managing Financial Data

There are many financial statements accountants should handle. There are the balance sheets, profits and loss statements, sales and expense reports, tax return forms, and many more. An accountant should be able to organize financial documents, create copies, and keep them secured and prepared for analysis.

Data Analysis and Consultation

Small business owners can rely on accountants to do accurate financial analysis for their businesses. Since small businesses don't involve many departments, owners can ask for financial advice from their accountants. In addition, ecommerce clients often turn to professionals when it comes to decision-making involving finances, and accountants should be able to help with situations like that.

Timely Business Reports

Financial reporting is essential for an ecommerce company to know the status of its business health. It is an accountant's duty to make these reports in a timely manner. For example, inventory management reports should be done at least once a month to know the exact number of your products.

Reports like these can also determine which products are fast selling and which stay in storage longer. As a result, timely financial data assists businesses in making better corporate decisions. Furthermore, in some situations, these reports are presented to board members, so they should always be prepared beforehand to ensure their accuracy and validity.

Key Roles of Certified Public Accountants

You can expect that CPAs can cover the roles and responsibilities of accountants. But with more training, they can offer more services. Let's look at the duties that CPAs can provide for your business.

Overseeing the Overall Accounting

Accounting services are broad, but a CPA understands and can perform all of the tasks if needed by the business. CPAs are interested in the company's bigger picture and focus their expertise on ensuring that their client's financial and business goals are achieved. Furthermore, CPAs ensure that the money circulates around the business well, so that all business functions are running.

Business Research

CPAs spend most of their time researching the business and diving into financial data to analyze its performance. Research can identify the strengths of a business and develop them. Furthermore, it can pinpoint weaknesses and potential issues.

Communication and Project Management

You can think of the CPA as the head of all the accountants in one company. Naturally, bigger companies will need a team of accountants to handle their finances. You can think of the CPA as the head of all the accountants in one company. CPAs make sure they delegate responsibilities properly for the accounting system to function.

Furthermore, it's a CPAs duty to talk with the members of the business. They directly report to higher-ups and different business managers, and update and make them understand the business plans moving forward.

Making a Choice: Ecommerce CPA or Accountant

Now that you know the difference between CPAs and accountants, you can decide which professional to hire for your business. There is no doubt that both professionals can help with your finances but choosing the right one can affect your business greatly.

If you're a small business owner, you'll need an ecommerce tax accountant more. Sales tax can be a handful for new business owners, but since the number of financial transactions is not significant, accountants can handle accounting for you.

But when your company expands, it will be advantageous to work with a certified public accountant. They can do more, and backed with their accounting expertise, you will be sure that your business finances stays in good hands. However, allocate money in your budget for CPA. Because of their training and expertise, they will cost more than professional accountants.

Final Thoughts

Hiring a professional is beneficial for every business. It is just a matter of choosing the correct one for your needs. Accountants and CPAs are almost similar in work, but to ensure that your resources are used effectively, be sure to understand what exactly your company needs.
If you're looking for a reliable accounting firm that will handle the needs of your ecommerce business, Unloop is the ecommerce accounting solution for you. We have a team of dedicated professionals that can help you with your business’s finances. Book a call with us today and learn more about our services now.

Ecommerce CPAs vs. Accountants: What's the Difference?
Watch Now

Accounting is an essential part of any business. Whether you're an online seller, a small business owner, or the head of a big company, making sense of your business numbers through thorough accounting will show the state of your business's financial health.

However, finances are not many people’s strong suit, and selecting the best expert to assist you is essential. For example, do you need an ecommerce accountant or a CPA? Additionally, are these two professionals even different? This blog post will help you decide who you should hire. We'll differentiate their roles, so you’ll know which professional is suitable for your ecommerce business.

Spotting the Difference: Ecommerce Accountants vs. CPAs

Many people use the term accountant and CPA interchangeably. The confusion is understandable since both jobs involve accounting. But the two roles differ greatly from one another. Although not all accountants are CPAs, all CPAs are accountants.

To help you tell the two apart, consider these significant differences.

Training and Licensing

Licensure is the primary distinction between an accountant and a CPA. Accountants don't need to take and pass a state-mandated exam to offer their services. However, before becoming a CPA or a certified public accountant, they must first obtain a license.

Furthermore, before CPAs are qualified to take their licensing exam, they should earn a bachelor's degree in financing and accounting. They must also complete rigorous training with specific hours in advanced accounting, auditing, and business courses.

Accountants can have a bachelor's degree in related courses like finance, business management, and accounting. From there, they will gain experience and training from school internships. After getting their diploma, accountants can expand their careers by getting certifications from accredited accounting organizations.

Knowledge on Taxation

There is no doubt that both professionals can help you with tax planning, returns, and filing. These basic tax services are covered in their training. However, when it comes to taxation laws and codes, a CPA has a more in-depth understanding.

Also, only CPAs can represent a business in front of the IRS. There are times, especially with big companies, when a business gets audited. Only CPAs can answer for your business and sign tax documents when necessary.

Code of Ethics

A governing body handles certified public accountants. Naturally, organizations have strict regulations and requirements to follow. The American Institute of Certified Public Accountants establish these professional standards, which fall under five broad categories and include:

  • Responsibilities
  • Due care
  • Public interest
  • Integrity
  • Objectivity and independence

Fiduciary Responsibility

A key CPA responsibility that accountants cannot do is act as fiduciaries for their clients. This means that an individual or an organization is legally allowed to represent and has authority on behalf of their client's best interest.

If you need representation in front of banks, board members, and government auditors, you should hire a licensed CPA.

Key Roles of Accountants for Ecommerce Businesses

Although ecommerce accountants don't have the exact detailed and rigorous training as CPAs, they still have significant roles to play that could benefit ecommerce business owners. Here are some duties they do so you can see if they are suited for your business.

Managing Financial Data

There are many financial statements accountants should handle. There are the balance sheets, profits and loss statements, sales and expense reports, tax return forms, and many more. An accountant should be able to organize financial documents, create copies, and keep them secured and prepared for analysis.

Data Analysis and Consultation

Small business owners can rely on accountants to do accurate financial analysis for their businesses. Since small businesses don't involve many departments, owners can ask for financial advice from their accountants. In addition, ecommerce clients often turn to professionals when it comes to decision-making involving finances, and accountants should be able to help with situations like that.

Timely Business Reports

Financial reporting is essential for an ecommerce company to know the status of its business health. It is an accountant's duty to make these reports in a timely manner. For example, inventory management reports should be done at least once a month to know the exact number of your products.

Reports like these can also determine which products are fast selling and which stay in storage longer. As a result, timely financial data assists businesses in making better corporate decisions. Furthermore, in some situations, these reports are presented to board members, so they should always be prepared beforehand to ensure their accuracy and validity.

Key Roles of Certified Public Accountants

You can expect that CPAs can cover the roles and responsibilities of accountants. But with more training, they can offer more services. Let's look at the duties that CPAs can provide for your business.

Overseeing the Overall Accounting

Accounting services are broad, but a CPA understands and can perform all of the tasks if needed by the business. CPAs are interested in the company's bigger picture and focus their expertise on ensuring that their client's financial and business goals are achieved. Furthermore, CPAs ensure that the money circulates around the business well, so that all business functions are running.

Business Research

CPAs spend most of their time researching the business and diving into financial data to analyze its performance. Research can identify the strengths of a business and develop them. Furthermore, it can pinpoint weaknesses and potential issues.

Communication and Project Management

You can think of the CPA as the head of all the accountants in one company. Naturally, bigger companies will need a team of accountants to handle their finances. You can think of the CPA as the head of all the accountants in one company. CPAs make sure they delegate responsibilities properly for the accounting system to function.

Furthermore, it's a CPAs duty to talk with the members of the business. They directly report to higher-ups and different business managers, and update and make them understand the business plans moving forward.

Making a Choice: Ecommerce CPA or Accountant

Now that you know the difference between CPAs and accountants, you can decide which professional to hire for your business. There is no doubt that both professionals can help with your finances but choosing the right one can affect your business greatly.

If you're a small business owner, you'll need an ecommerce tax accountant more. Sales tax can be a handful for new business owners, but since the number of financial transactions is not significant, accountants can handle accounting for you.

But when your company expands, it will be advantageous to work with a certified public accountant. They can do more, and backed with their accounting expertise, you will be sure that your business finances stays in good hands. However, allocate money in your budget for CPA. Because of their training and expertise, they will cost more than professional accountants.

Final Thoughts

Hiring a professional is beneficial for every business. It is just a matter of choosing the correct one for your needs. Accountants and CPAs are almost similar in work, but to ensure that your resources are used effectively, be sure to understand what exactly your company needs.
If you're looking for a reliable accounting firm that will handle the needs of your ecommerce business, Unloop is the ecommerce accounting solution for you. We have a team of dedicated professionals that can help you with your business’s finances. Book a call with us today and learn more about our services now.

Read more

Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.

When it comes to selling products on Amazon, it's crucial for Canadian sellers to understand their income tax obligations. With the rise in online businesses and the increasing popularity of Amazon as a selling platform, you need to know the details and pay the right amount each time.

This article aims to provide Canadian Amazon sellers with a general overview of Amazon seller income tax in Canada. We hope to equip eCommerce sellers like you with the necessary knowledge in securing tax obligations and maximizing business profits.

Here are 8 frequently asked questions, answered:

  1. What Is Sales Tax?

A sales tax is a value-added consumption tax included in the sales price of goods and services. The sales tax is paid at the buyer's expense, which the seller must file to the appropriate tax authorities.

  1. What Are General, Harmonized, Quebec, and Provincial Sales Taxes?

The Canadian government imposes three different taxes for the computation of a sales tax:

Federal Goods and Services Tax (GST)

The federal goods and services tax, or GST, is a value-added tax imposed by the government on goods and services. The standard rate for the GST is 5%.

Provincial Sales Tax (PST)

Provincial sales tax, or PST, on the other hand, is a different value-added tax levied locally on the same goods and services that business owners have sold. The rate for the PST is 6%-7%.

Harmonized Sales Tax (HST)

The Harmonized Sales Tax (HST) is a uniform rate for five of the thirteen provinces and territories of the Canadian government. In provinces following the HST, the GST or the provincial sales tax PST do not apply. 

Instead, there is a single rate for all five provinces, which is 15% (except for Ontario, which charges a 13% sales tax). With the harmonized sales tax (HST), you only need to file one (1) tax return for all five provinces, removing the hassle of doing your taxes.

Quebec Sales Tax (QST)

The Quebec Sales Tax is similar to the Canadian provincial sales taxes (PST) in function, with only the rate being different. If the provincial sales tax is at 6%-7%, then the Quebec sales tax is at 9.975%

The sales tax, while consistent among countries as an attachment to purchasing goods and services, comes in different computations depending on a nation's tax policy.

  1. How Do You Compute Sales Tax?

Now, here's where it can get confusing. You can compute Canada's sales tax in three ways:

First, there is the standard federal sales tax plus provincial taxes. In these provinces, you must add the federal goods and services tax to the local taxes. For example, the sales tax in British Columbia and Manitoba is 12%, coming from a federal sales tax of 5% and provincial taxes of 7%.

Next, some provinces do not impose provincial sales taxes and instead collect only the federal sales tax of 5%. Such provinces include: 

  • Alberta, 
  • Nunavut, 
  • Yukon, 
  • and the Northwest Territories.

Finally, there is the HST. Since the federal taxes and local taxes no longer apply, you can mark your sales tax in provinces under the HST at 15% (except Ontario, with an HST rate of 13%).

Check out the different Canadian sales tax rates below for the specifics:

Provinces Using Harmonized Sales Tax
Newfoundland/Labrador (15%)New Brunswick (15%)Nova Scotia (15%)Ontario (13%)Prince Edward Island (15%)
Provinces Using Goods and Services Tax + Provincial Sales Tax
British Columbia (12%)Quebec (14.975%)Saskatchewan (11%)Manitoba (12%)
Provinces Using Goods and Services Tax Only
Alberta (5%)Northwest Territories (5%)Nunavut (5%)Yukon (5%)
  1. Does Amazon Collect Sales Taxes for Sellers in Canada?

Marketplace facilitators (MPF) handle tax work for third-party sellers. MPF legislation defines ab MPF as a marketplace that allows third-party sellers to sell physical and digital property, goods, and services online. 

Amazon, being an MPF, is now responsible for calculating, collecting taxes, and remitting Canadian taxes for their third-party Amazon sellers on taxable sales covered by MPF legislation.

  1. What Happens If I Fail to Pay Canadian Taxes?

Fulfilling your tax obligations as a Canadian seller can be tedious, but it’s a must. Failure to file and remit sales taxes could lead to criminal charges and could foresee the end of your time as a business owner.

  1. Who Should Pay Sales Taxes?

Canadian eCommerce sellers or international sellers have to pay GST/HST.

As the business owner of a Canadian company, you're obliged to pay your Canadian taxes. But for your sales to be taxable, you'll have to open a sales tax account with the Canada Revenue Agency, also known as a GST/HST account. 

If you're a Canadian seller with worldwide business income less than or equal to $30,000 for a period of 12 months, you're considered a small supplier and are prohibited from filing for and charging sales taxes. You can collect sales tax and remit on the product or service that surpasses $30,000.

Foreign Amazon sellers with a gross income of over $30,000 in Canadian sales are required to open a sales tax account to pay HST/GST.

  1. When Should I Pay Sales Taxes?

Sales tax filing deadline in Canada is April 30, with income tax returns collection beginning around February. Nevertheless, payment for Canadian taxes is usually collected monthly or annually. If your business income is less than $1.5 million in sales, then you can pay annually.

In some provinces, however, the cap is lower. For instance, in Saskatchewan, if you collect less than $3,600, you can pay annually. Then if your taxes are paid on time during the first year, you'll be paying the next few years annually. It would be best to check with the province local rules on monthly, quarterly, or annual tax filing to be sure.

  1. How Do I Pay My Sales Taxes?

You can pay your GST/HST in three ways:

  • Remit sales taxes at a financial institution
  • Remit taxes electronically
  • Send Canadian sales tax by mail

You can pay your Goods and Services Tax/Harmonized Sales Tax using a financial institution's transaction methods or online banking services. The Canadian Revenue Agency (CRA) has a new online payment method called MyPayment. You can try different payment options using MyPayment. Check their website for different payment options for businesses and individuals.

On the other hand, if you want to pay your GST/HST through a financial institution, use Form RC158, Remittance Voucher - Payment on Filing to pay the amount you owe. These tax forms aren't available online since they come in pre-printed format.

The following tax-related forms are also available:

  • Form RC159, Remittance Voucher - Interim Payments
  • Form RC160, Remittance Voucher - Amount Owing
  • Form RC177, Remittance Voucher - Balance Due

You can also send your payment by mail. However, payment sent by mail should be under $50,000, regardless of currency. Any mail equal to or above $50,000 should be remitted electronically or through a financial institution.

If you're not paying in Canadian dollars, simply pay the equivalent amount in the available currency.

Partner With Unloop!

There you go! 

We hope we've provided you with valuable information on Canadian sales taxes, including the different rates and how to compute them. 

Remember the recent changes in tax policy that allow Amazon to collect and remit taxes for third-party Amazon sellers. And of course, do not forget that failing to pay taxes can have serious consequences, including criminal charges. 

If you need assistance from a tax professional for your Harmonized Sales Tax, Provincial Sales Tax, Quebec Sales Tax, and Goods and Services Tax to keep a clear record to the Canada Revenue agency, partner with Unloop!

We can handle your sales taxes or accounting solutions specifically for your Amazon store. Feel free to contact us. We'd love to discuss your services with you.

Amazon Seller Income Tax (Canada): 8 Frequently Asked Questions, Answered!
Watch Now

Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.

When it comes to selling products on Amazon, it's crucial for Canadian sellers to understand their income tax obligations. With the rise in online businesses and the increasing popularity of Amazon as a selling platform, you need to know the details and pay the right amount each time.

This article aims to provide Canadian Amazon sellers with a general overview of Amazon seller income tax in Canada. We hope to equip eCommerce sellers like you with the necessary knowledge in securing tax obligations and maximizing business profits.

Here are 8 frequently asked questions, answered:

  1. What Is Sales Tax?

A sales tax is a value-added consumption tax included in the sales price of goods and services. The sales tax is paid at the buyer's expense, which the seller must file to the appropriate tax authorities.

  1. What Are General, Harmonized, Quebec, and Provincial Sales Taxes?

The Canadian government imposes three different taxes for the computation of a sales tax:

Federal Goods and Services Tax (GST)

The federal goods and services tax, or GST, is a value-added tax imposed by the government on goods and services. The standard rate for the GST is 5%.

Provincial Sales Tax (PST)

Provincial sales tax, or PST, on the other hand, is a different value-added tax levied locally on the same goods and services that business owners have sold. The rate for the PST is 6%-7%.

Harmonized Sales Tax (HST)

The Harmonized Sales Tax (HST) is a uniform rate for five of the thirteen provinces and territories of the Canadian government. In provinces following the HST, the GST or the provincial sales tax PST do not apply. 

Instead, there is a single rate for all five provinces, which is 15% (except for Ontario, which charges a 13% sales tax). With the harmonized sales tax (HST), you only need to file one (1) tax return for all five provinces, removing the hassle of doing your taxes.

Quebec Sales Tax (QST)

The Quebec Sales Tax is similar to the Canadian provincial sales taxes (PST) in function, with only the rate being different. If the provincial sales tax is at 6%-7%, then the Quebec sales tax is at 9.975%

The sales tax, while consistent among countries as an attachment to purchasing goods and services, comes in different computations depending on a nation's tax policy.

  1. How Do You Compute Sales Tax?

Now, here's where it can get confusing. You can compute Canada's sales tax in three ways:

First, there is the standard federal sales tax plus provincial taxes. In these provinces, you must add the federal goods and services tax to the local taxes. For example, the sales tax in British Columbia and Manitoba is 12%, coming from a federal sales tax of 5% and provincial taxes of 7%.

Next, some provinces do not impose provincial sales taxes and instead collect only the federal sales tax of 5%. Such provinces include: 

  • Alberta, 
  • Nunavut, 
  • Yukon, 
  • and the Northwest Territories.

Finally, there is the HST. Since the federal taxes and local taxes no longer apply, you can mark your sales tax in provinces under the HST at 15% (except Ontario, with an HST rate of 13%).

Check out the different Canadian sales tax rates below for the specifics:

Provinces Using Harmonized Sales Tax
Newfoundland/Labrador (15%)New Brunswick (15%)Nova Scotia (15%)Ontario (13%)Prince Edward Island (15%)
Provinces Using Goods and Services Tax + Provincial Sales Tax
British Columbia (12%)Quebec (14.975%)Saskatchewan (11%)Manitoba (12%)
Provinces Using Goods and Services Tax Only
Alberta (5%)Northwest Territories (5%)Nunavut (5%)Yukon (5%)
  1. Does Amazon Collect Sales Taxes for Sellers in Canada?

Marketplace facilitators (MPF) handle tax work for third-party sellers. MPF legislation defines ab MPF as a marketplace that allows third-party sellers to sell physical and digital property, goods, and services online. 

Amazon, being an MPF, is now responsible for calculating, collecting taxes, and remitting Canadian taxes for their third-party Amazon sellers on taxable sales covered by MPF legislation.

  1. What Happens If I Fail to Pay Canadian Taxes?

Fulfilling your tax obligations as a Canadian seller can be tedious, but it’s a must. Failure to file and remit sales taxes could lead to criminal charges and could foresee the end of your time as a business owner.

  1. Who Should Pay Sales Taxes?

Canadian eCommerce sellers or international sellers have to pay GST/HST.

As the business owner of a Canadian company, you're obliged to pay your Canadian taxes. But for your sales to be taxable, you'll have to open a sales tax account with the Canada Revenue Agency, also known as a GST/HST account. 

If you're a Canadian seller with worldwide business income less than or equal to $30,000 for a period of 12 months, you're considered a small supplier and are prohibited from filing for and charging sales taxes. You can collect sales tax and remit on the product or service that surpasses $30,000.

Foreign Amazon sellers with a gross income of over $30,000 in Canadian sales are required to open a sales tax account to pay HST/GST.

  1. When Should I Pay Sales Taxes?

Sales tax filing deadline in Canada is April 30, with income tax returns collection beginning around February. Nevertheless, payment for Canadian taxes is usually collected monthly or annually. If your business income is less than $1.5 million in sales, then you can pay annually.

In some provinces, however, the cap is lower. For instance, in Saskatchewan, if you collect less than $3,600, you can pay annually. Then if your taxes are paid on time during the first year, you'll be paying the next few years annually. It would be best to check with the province local rules on monthly, quarterly, or annual tax filing to be sure.

  1. How Do I Pay My Sales Taxes?

You can pay your GST/HST in three ways:

  • Remit sales taxes at a financial institution
  • Remit taxes electronically
  • Send Canadian sales tax by mail

You can pay your Goods and Services Tax/Harmonized Sales Tax using a financial institution's transaction methods or online banking services. The Canadian Revenue Agency (CRA) has a new online payment method called MyPayment. You can try different payment options using MyPayment. Check their website for different payment options for businesses and individuals.

On the other hand, if you want to pay your GST/HST through a financial institution, use Form RC158, Remittance Voucher - Payment on Filing to pay the amount you owe. These tax forms aren't available online since they come in pre-printed format.

The following tax-related forms are also available:

  • Form RC159, Remittance Voucher - Interim Payments
  • Form RC160, Remittance Voucher - Amount Owing
  • Form RC177, Remittance Voucher - Balance Due

You can also send your payment by mail. However, payment sent by mail should be under $50,000, regardless of currency. Any mail equal to or above $50,000 should be remitted electronically or through a financial institution.

If you're not paying in Canadian dollars, simply pay the equivalent amount in the available currency.

Partner With Unloop!

There you go! 

We hope we've provided you with valuable information on Canadian sales taxes, including the different rates and how to compute them. 

Remember the recent changes in tax policy that allow Amazon to collect and remit taxes for third-party Amazon sellers. And of course, do not forget that failing to pay taxes can have serious consequences, including criminal charges. 

If you need assistance from a tax professional for your Harmonized Sales Tax, Provincial Sales Tax, Quebec Sales Tax, and Goods and Services Tax to keep a clear record to the Canada Revenue agency, partner with Unloop!

We can handle your sales taxes or accounting solutions specifically for your Amazon store. Feel free to contact us. We'd love to discuss your services with you.

Read more

Financial forecasting is the backbone of good financial planning. Many things can affect a financial forecast other than numbers and some formulas. Fortunately for business owners, technology makes forecasting easier through financial forecasting software tools. 

Businesses use several budgeting and forecasting software to help predict future performance and plan future budgets. To help you choose which is best for your business, we've listed some of the best forecasting software options. 

6 Best Budgeting Forecasting Software Tools

Financial forecasting directly affects your budget planning, business strategy, and investments. Even a structured business model needs financial forecasting to prepare for the future. 

It's a big problem when businesses run out of cash or are unprepared for the surge of expenses to keep their business running and retain their clients. Accurate financial forecasts are valuable to every business, whether big or small. 

Most businesses start with an Excel spreadsheet to develop their financial forecasting. However, forecasting in spreadsheets can be complicated and restrictive due to the following reasons:

  • Data entry in spreadsheets is manual and highly prone to human error.
  • Excel sheets make it difficult to collaborate.
  • Without a central database, you still have to double-check formulas, references, and other data manually.

Forecasting in Excel is doable, but it is time-consuming and may not always be reliable. Developers continually make software solutions for more progressive, innovative, and convenient forecasting. 

Here are the top budgeting and forecasting software products you should check out. 

1. Cube

Cube is one of the top-rated forecasting software for businesses. It is the best budgeting and forecasting software for startup businesses that want to quickly transfer their data from manual spreadsheets to forecasting software without studying complicated interfaces. Here is a quick overview of its benefits:

  • Cube has a spreadsheet-style interface, so businesses that come from Excel won't have difficulty adapting to a new software solution.
  • It significantly lessens manual work and gives real-time data into your business's financial needs.  
  • The software gives you access to teams with expert experience in financial forecasting and budgeting.
  • It promotes faster workflows and is optimized for easier collaboration. 

Some of the noteworthy functions of this financial planning software include:

✅Automatic data consolidation
✅Bidirectional Microsoft Excel and Google Sheets integrations
✅User-based controls
✅A centralized database for formulas and other data
✅Customizable dashboards and reports

2. AnaPlan

AnaPlan forecasting software is designed to plan for complex scenarios and do intelligent forecasting for faster and more accurate decision-making. It is ideal for bigger businesses with a dedicated IT team that can handle complex software controls. Here are some key benefits of using AnaPlan:

✅It lets you overcome financial and operational planning challenges using user-owned business models.
✅It keeps you updated with the ever-changing marketing conditions using AnaPlan's model engine.
✅Allows you to view business plans on detailed levels to see how they can affect your business in real-time.
✅Increases the accuracy of your decisions and business outcomes by using predictive analysis and what-if analysis.

3. Planful

Planful is an affordable cloud-based solution for structured and dynamic planning, consolidation, and reporting that suits mid-market companies. Planful offers the following features and benefits:

✅ An annual operating plan to help define your company's blueprint for a year.
✅ Workforce planning helps an organization hone employees to work at their best performance.
✅ Scenario analysis to explore every possible option and steer towards it at a moment's notice.
✅ Financial reporting for key financial insights to make better and quicker decisions: This reporting is fully automated and eliminates errors, so you can trust the data you have on hand.

Planful also has AI-enhanced operations and functions that allow businesses to lessen the number of people they need to hire in the financial department. This reduces expenses in hiring staff. 

4. SAS Forecast Server

SAS Forecast Server is one of the popular business forecasting tools because of its ability to generate accurate forecasts quickly. But more than quick forecasts, SAS has many great features to let you be in full control of your business financials:  

The forecasting software has an easy-to-use GUI that can:
✅Generate automatic forecasts in batches or interactively.
✅Build and reconcile forecasts created in varying time intervals.
✅Publish forecasting results via the company's portal, the internet, or hard copy.
Its scalability and modeling also offer the following:
✅Freedom to choose the level of automation for the forecasting process
✅Creation of new models by combining two older business models to create more accurate forecasting results
✅Enhanced performance capabilities through the multi-threading of forecasting and diagnostic engines

The SAS forecasting software has many great and advanced features, which makes this forecasting software good for small businesses and large enterprises. However, it can take some time for business owners to familiarize themselves with the software, but the product has official demo videos to help new users.

5. Bizview Financial Planning and Analysis Software

Bizview is another cloud-based solution that can streamline your planning, forecasting, and budgeting processes in one software. With a stable internet connection, you can access this software anytime and on any device.

Here are some of the features of Insight Software's Bizview:

✅Flexibility, so you can control the software to match your business's needs.
✅It continuously monitors and updates forecasts for the entire year to give your business better insights.
✅It develops accurate financial plans across your entire business, including sales budgets, productions budgets, employee budgets, etc.
✅It allows you to access data from your ERP system and other data sources to create reports without relying on ITs.

Bizview has an interactive Excel-like interface, so many business owners prefer this software. It is also the most affordable software you can use for small businesses.

6. Streamline Forecasting Software

Streamline is the leading forecasting software for the first quarter of 2023. Its revenue forecasting processes are realistic, innovative, and quick to ensure that your business is on the right track when planning budgets and making strategic decisions. This budgeting and forecasting software suits big and small businesses

Here are some of the key features of this forecasting tool:

✅The software provides seamless integration of your financial data. You can easily import operational data from your system to Streamline and automatically export financial projections to your ERP system.
✅The software has a scenario planning feature to analyze data and pinpoint potential issues that could happen so you can consider them in your business planning.
✅Financial predictions can involve inventory, cash flow forecasting, and other factors affecting your finances.
✅It has AI-based forecasting capabilities, which ensure 99% accurate budget forecasting at all times.

Swift and Precise Financial Management and Forecasting With Unloop

There are hundreds of financial budgeting software available for businesses to use. It is just a matter of choosing the right software for your needs. The forecasting tools discussed are some of the best examples you can get for your business. But don't be afraid to explore and find budgeting and forecasting tools to suit your liking and needs.

If you need a budgeting, forecasting, and accounting professional, Unloop can do the job! Our services include revenue forecasting so that we can help small businesses like yours in their growth trajectory.

We use your business's historical data to determine and fix any pain points before they happen. We will also set your business up with an excellent and suitable reporting tool for accurate financial forecasts and continuous planning. 
Book a call with our experts today and monitor your financial performance!

Be Future Ready: The Best Financial Forecasting Software
Watch Now

Financial forecasting is the backbone of good financial planning. Many things can affect a financial forecast other than numbers and some formulas. Fortunately for business owners, technology makes forecasting easier through financial forecasting software tools. 

Businesses use several budgeting and forecasting software to help predict future performance and plan future budgets. To help you choose which is best for your business, we've listed some of the best forecasting software options. 

6 Best Budgeting Forecasting Software Tools

Financial forecasting directly affects your budget planning, business strategy, and investments. Even a structured business model needs financial forecasting to prepare for the future. 

It's a big problem when businesses run out of cash or are unprepared for the surge of expenses to keep their business running and retain their clients. Accurate financial forecasts are valuable to every business, whether big or small. 

Most businesses start with an Excel spreadsheet to develop their financial forecasting. However, forecasting in spreadsheets can be complicated and restrictive due to the following reasons:

  • Data entry in spreadsheets is manual and highly prone to human error.
  • Excel sheets make it difficult to collaborate.
  • Without a central database, you still have to double-check formulas, references, and other data manually.

Forecasting in Excel is doable, but it is time-consuming and may not always be reliable. Developers continually make software solutions for more progressive, innovative, and convenient forecasting. 

Here are the top budgeting and forecasting software products you should check out. 

1. Cube

Cube is one of the top-rated forecasting software for businesses. It is the best budgeting and forecasting software for startup businesses that want to quickly transfer their data from manual spreadsheets to forecasting software without studying complicated interfaces. Here is a quick overview of its benefits:

  • Cube has a spreadsheet-style interface, so businesses that come from Excel won't have difficulty adapting to a new software solution.
  • It significantly lessens manual work and gives real-time data into your business's financial needs.  
  • The software gives you access to teams with expert experience in financial forecasting and budgeting.
  • It promotes faster workflows and is optimized for easier collaboration. 

Some of the noteworthy functions of this financial planning software include:

✅Automatic data consolidation
✅Bidirectional Microsoft Excel and Google Sheets integrations
✅User-based controls
✅A centralized database for formulas and other data
✅Customizable dashboards and reports

2. AnaPlan

AnaPlan forecasting software is designed to plan for complex scenarios and do intelligent forecasting for faster and more accurate decision-making. It is ideal for bigger businesses with a dedicated IT team that can handle complex software controls. Here are some key benefits of using AnaPlan:

✅It lets you overcome financial and operational planning challenges using user-owned business models.
✅It keeps you updated with the ever-changing marketing conditions using AnaPlan's model engine.
✅Allows you to view business plans on detailed levels to see how they can affect your business in real-time.
✅Increases the accuracy of your decisions and business outcomes by using predictive analysis and what-if analysis.

3. Planful

Planful is an affordable cloud-based solution for structured and dynamic planning, consolidation, and reporting that suits mid-market companies. Planful offers the following features and benefits:

✅ An annual operating plan to help define your company's blueprint for a year.
✅ Workforce planning helps an organization hone employees to work at their best performance.
✅ Scenario analysis to explore every possible option and steer towards it at a moment's notice.
✅ Financial reporting for key financial insights to make better and quicker decisions: This reporting is fully automated and eliminates errors, so you can trust the data you have on hand.

Planful also has AI-enhanced operations and functions that allow businesses to lessen the number of people they need to hire in the financial department. This reduces expenses in hiring staff. 

4. SAS Forecast Server

SAS Forecast Server is one of the popular business forecasting tools because of its ability to generate accurate forecasts quickly. But more than quick forecasts, SAS has many great features to let you be in full control of your business financials:  

The forecasting software has an easy-to-use GUI that can:
✅Generate automatic forecasts in batches or interactively.
✅Build and reconcile forecasts created in varying time intervals.
✅Publish forecasting results via the company's portal, the internet, or hard copy.
Its scalability and modeling also offer the following:
✅Freedom to choose the level of automation for the forecasting process
✅Creation of new models by combining two older business models to create more accurate forecasting results
✅Enhanced performance capabilities through the multi-threading of forecasting and diagnostic engines

The SAS forecasting software has many great and advanced features, which makes this forecasting software good for small businesses and large enterprises. However, it can take some time for business owners to familiarize themselves with the software, but the product has official demo videos to help new users.

5. Bizview Financial Planning and Analysis Software

Bizview is another cloud-based solution that can streamline your planning, forecasting, and budgeting processes in one software. With a stable internet connection, you can access this software anytime and on any device.

Here are some of the features of Insight Software's Bizview:

✅Flexibility, so you can control the software to match your business's needs.
✅It continuously monitors and updates forecasts for the entire year to give your business better insights.
✅It develops accurate financial plans across your entire business, including sales budgets, productions budgets, employee budgets, etc.
✅It allows you to access data from your ERP system and other data sources to create reports without relying on ITs.

Bizview has an interactive Excel-like interface, so many business owners prefer this software. It is also the most affordable software you can use for small businesses.

6. Streamline Forecasting Software

Streamline is the leading forecasting software for the first quarter of 2023. Its revenue forecasting processes are realistic, innovative, and quick to ensure that your business is on the right track when planning budgets and making strategic decisions. This budgeting and forecasting software suits big and small businesses

Here are some of the key features of this forecasting tool:

✅The software provides seamless integration of your financial data. You can easily import operational data from your system to Streamline and automatically export financial projections to your ERP system.
✅The software has a scenario planning feature to analyze data and pinpoint potential issues that could happen so you can consider them in your business planning.
✅Financial predictions can involve inventory, cash flow forecasting, and other factors affecting your finances.
✅It has AI-based forecasting capabilities, which ensure 99% accurate budget forecasting at all times.

Swift and Precise Financial Management and Forecasting With Unloop

There are hundreds of financial budgeting software available for businesses to use. It is just a matter of choosing the right software for your needs. The forecasting tools discussed are some of the best examples you can get for your business. But don't be afraid to explore and find budgeting and forecasting tools to suit your liking and needs.

If you need a budgeting, forecasting, and accounting professional, Unloop can do the job! Our services include revenue forecasting so that we can help small businesses like yours in their growth trajectory.

We use your business's historical data to determine and fix any pain points before they happen. We will also set your business up with an excellent and suitable reporting tool for accurate financial forecasts and continuous planning. 
Book a call with our experts today and monitor your financial performance!

Read more

Cash flow forecasting can be tricky—it requires skills, attention to detail, and dedication. But when done right, cash flow forecasting can offer tremendous value and invaluable insight into the future of your startup business or project.

Many organizations face significant challenges while attempting this exercise, but some workarounds can help you achieve success in predicting your financial future with confidence.

In this blog post, we'll explore some common cash flow forecasting challenges and solutions for improving your forecasts' accuracy. With these tips, you'll have valuable information to make better decisions about where to allocate resources and set appropriate expectations for revenue and expenses.

Challenge #1: Not Knowing the Importance of Cash Flow Forecasts

As an owner of a startup business, at the beginning, your cash flow may be slow and manageable using manual bookkeeping and accounting. A common mistake would be sticking to this day-to-day cash flow monitoring system and not forecasting. Seeing only daily cash flow and having no visibility about your company's future income and expenses is like operating a business in the dark.

The Workaround

Understand that cash flow management is essential for all businesses, even startups. Know that with it, you can see how much income and expenses you’ll have daily, weekly, monthly, quarterly, or annually. As a result, you can use the data as the basis of your financial game plans. You can use it to decide the following:

  • When to invest
  • How much to save
  • What to do with your profits
  • How to increase your sales
  • How to minimize spending

Challenge #2: Limited Historical Data

Having limited historical data is common to startups either because owners have failed to store financial data in the past or because the business hasn’t been running for a significant period of time yet. Historical data is the most basic information needed when creating a cash flow forecast, and the absence of these numbers makes the forecast result less reliable. 

The Workaround

Despite the absence of historical data, there are still ways to get a reliable cash flow forecast. To begin, whether you lack past numbers because of a personal choice or not, it is time to invest in software and applications to help you track your business finances.

These apps and software can also help you conveniently create simulations, or before and after trials. Use the following data for your forecasts:

  • Current income and expenses
  • Any historical data available
  • Competitor data
  • Customer surveys
  • Economic, political, social, and environmental factors
  • Insights from experts

Challenge #3: Inaccurate Data Sources

The biggest enemy of a cash flow forecast is inaccurate data, which can happen when tracking income and expenses manually. Although Excel sheets are readily available (and free), they may lose your business money in the long run as human errors bring costly damages to your finances.

Inaccurate data leads to making bigger loans, being overconfident in forecasting income, making fewer investments, and saving less—all detrimental to your business growth.

The Workaround

The most efficient workaround to the data inaccuracy problem is bidding goodbye to your company's manual systems. Accept that part of growth is optimizing your bookkeeping and accounting technology so that you can track your finances better. 

Accounting software is highly automated, and you can also integrate various apps. As a result, you can minimize or even eradicate manual inputs, which can cause inaccurate data.

cash forecasting process

Challenge #4: The Absence of Interdepartmental Collaboration

If there are a couple of teams in your company, you’ll need input for their income and expenses. This task becomes a roadblock when there is no collaboration between different departments. When different teams do not practise open communication, you might get incomplete or erroneous financial data from them. Another challenge is not having an established system for workflow and data submission processes in the company. 

The Workaround

Excellent accountants and bookkeepers need to be well-versed in their tasks or have certifications and training to perform them correctly. On top of that, they should have communication skills and be team players. This is to make sure that they can connect to the various departments in your company to get the needed data. They also need to be forward thinkers to suggest and enact the best systems to make this data acquisition as smooth as possible for everyone.

Challenge #5: Unpredictable and Changing Variables

Expect that a cash flow forecast doesn’t mean you’ll get 100% accuracy, as the following variables are prone to changes:

  • Interest rates
  • Foreign exchange rates
  • Commodity prices
  • Sales taxes
  • Prices of raw materials
  • Customer payment behaviours

As a result, the final accounts receivable and payable won’t be exactly as what you forecasted.

The Workaround

The best workaround to ensure that you get the forecast closest to the truth is keeping numbers and data updated. Be in the know with the latest interest and foreign exchange rates. Know if there are changes in sales taxes and other tax dues you need to pay. If there are updates on commodity and raw material prices, they should also be reflected in your forecast. And do not forget about your customers too. Check sales trends to know when your peak sales occur.

Challenge #6: Skipping Forecasts and Actual Data Analysis

Successfully launching a cash flow forecast is not the end of the cash forecasting process, but it becomes a problem if you make it so. As we’ve learned, some variables are subject to change, so if one variable adjusts, the income and expenses will as well. If you keep on using the old data without any adjustments, your business finances will suffer these consequences:

  • It will disable you from adjusting your game plans accurately.
  • You won't be able to align your investments and spending, to your actual earnings and expenses. 
  • You won’t identify potential financial risks, so you’ll be unable to proactively stop them from happening.

The Workaround

The best way to do a cash flow projection and actual cash flow analysis is through the help of software. An accounting software already has the forecast and the latest data of your business stored. They also have templates to show a comparison of current cash flow and forecast data. With software, generating reports is easier, and you can regularly analyze data to see if you need to optimize your cash flow plans and strategies.

cash forecasting

Challenge #7: Lacking a Qualified Forecasting Team

Creating and maintaining a cash flow forecast is a major task for every company. Not having a dedicated team to handle it makes report generation impossible. And if even one is created, there wouldn’t be anyone to update it and let you know the latest data analysis results. Like a snowball, a series of the above mentioned challenges will surely accumulate.

The Workaround

There are plenty of choices a company can go for to hire a bookkeeper and accountant to handle forecasts. An in-house accountant is the traditional choice, but you can also choose to work with remote team members and freelancers. With these choices, building a dedicated team to handle forecasting becomes easier.

Your finance team will ensure your business has a defined forecasting process, an efficient way to acquire and manage data, and the best software to make forecasting cash flow easier and more accurate.

Cash Flow Forecast Solutions by Unloop

With cash forecasting being so important to any business’s success, startups must understand common challenges and how to avoid them. We hope that these common challenges startups face when forecasting cash flow and some workarounds have helped you. At Unloop, we have seen firsthand how important cash flow forecasts are to businesses. Proper forecasts can help businesses stretch their budgets and stay ahead of payments. With that in mind, take advantage of our forecasting services to experience the power of having a reliable and secure forecasting platform at your fingertips. Call us today!

7 Cash Flow Forecasting Challenges and Workarounds Startups Should Know
Watch Now

Cash flow forecasting can be tricky—it requires skills, attention to detail, and dedication. But when done right, cash flow forecasting can offer tremendous value and invaluable insight into the future of your startup business or project.

Many organizations face significant challenges while attempting this exercise, but some workarounds can help you achieve success in predicting your financial future with confidence.

In this blog post, we'll explore some common cash flow forecasting challenges and solutions for improving your forecasts' accuracy. With these tips, you'll have valuable information to make better decisions about where to allocate resources and set appropriate expectations for revenue and expenses.

Challenge #1: Not Knowing the Importance of Cash Flow Forecasts

As an owner of a startup business, at the beginning, your cash flow may be slow and manageable using manual bookkeeping and accounting. A common mistake would be sticking to this day-to-day cash flow monitoring system and not forecasting. Seeing only daily cash flow and having no visibility about your company's future income and expenses is like operating a business in the dark.

The Workaround

Understand that cash flow management is essential for all businesses, even startups. Know that with it, you can see how much income and expenses you’ll have daily, weekly, monthly, quarterly, or annually. As a result, you can use the data as the basis of your financial game plans. You can use it to decide the following:

  • When to invest
  • How much to save
  • What to do with your profits
  • How to increase your sales
  • How to minimize spending

Challenge #2: Limited Historical Data

Having limited historical data is common to startups either because owners have failed to store financial data in the past or because the business hasn’t been running for a significant period of time yet. Historical data is the most basic information needed when creating a cash flow forecast, and the absence of these numbers makes the forecast result less reliable. 

The Workaround

Despite the absence of historical data, there are still ways to get a reliable cash flow forecast. To begin, whether you lack past numbers because of a personal choice or not, it is time to invest in software and applications to help you track your business finances.

These apps and software can also help you conveniently create simulations, or before and after trials. Use the following data for your forecasts:

  • Current income and expenses
  • Any historical data available
  • Competitor data
  • Customer surveys
  • Economic, political, social, and environmental factors
  • Insights from experts

Challenge #3: Inaccurate Data Sources

The biggest enemy of a cash flow forecast is inaccurate data, which can happen when tracking income and expenses manually. Although Excel sheets are readily available (and free), they may lose your business money in the long run as human errors bring costly damages to your finances.

Inaccurate data leads to making bigger loans, being overconfident in forecasting income, making fewer investments, and saving less—all detrimental to your business growth.

The Workaround

The most efficient workaround to the data inaccuracy problem is bidding goodbye to your company's manual systems. Accept that part of growth is optimizing your bookkeeping and accounting technology so that you can track your finances better. 

Accounting software is highly automated, and you can also integrate various apps. As a result, you can minimize or even eradicate manual inputs, which can cause inaccurate data.

cash forecasting process

Challenge #4: The Absence of Interdepartmental Collaboration

If there are a couple of teams in your company, you’ll need input for their income and expenses. This task becomes a roadblock when there is no collaboration between different departments. When different teams do not practise open communication, you might get incomplete or erroneous financial data from them. Another challenge is not having an established system for workflow and data submission processes in the company. 

The Workaround

Excellent accountants and bookkeepers need to be well-versed in their tasks or have certifications and training to perform them correctly. On top of that, they should have communication skills and be team players. This is to make sure that they can connect to the various departments in your company to get the needed data. They also need to be forward thinkers to suggest and enact the best systems to make this data acquisition as smooth as possible for everyone.

Challenge #5: Unpredictable and Changing Variables

Expect that a cash flow forecast doesn’t mean you’ll get 100% accuracy, as the following variables are prone to changes:

  • Interest rates
  • Foreign exchange rates
  • Commodity prices
  • Sales taxes
  • Prices of raw materials
  • Customer payment behaviours

As a result, the final accounts receivable and payable won’t be exactly as what you forecasted.

The Workaround

The best workaround to ensure that you get the forecast closest to the truth is keeping numbers and data updated. Be in the know with the latest interest and foreign exchange rates. Know if there are changes in sales taxes and other tax dues you need to pay. If there are updates on commodity and raw material prices, they should also be reflected in your forecast. And do not forget about your customers too. Check sales trends to know when your peak sales occur.

Challenge #6: Skipping Forecasts and Actual Data Analysis

Successfully launching a cash flow forecast is not the end of the cash forecasting process, but it becomes a problem if you make it so. As we’ve learned, some variables are subject to change, so if one variable adjusts, the income and expenses will as well. If you keep on using the old data without any adjustments, your business finances will suffer these consequences:

  • It will disable you from adjusting your game plans accurately.
  • You won't be able to align your investments and spending, to your actual earnings and expenses. 
  • You won’t identify potential financial risks, so you’ll be unable to proactively stop them from happening.

The Workaround

The best way to do a cash flow projection and actual cash flow analysis is through the help of software. An accounting software already has the forecast and the latest data of your business stored. They also have templates to show a comparison of current cash flow and forecast data. With software, generating reports is easier, and you can regularly analyze data to see if you need to optimize your cash flow plans and strategies.

cash forecasting

Challenge #7: Lacking a Qualified Forecasting Team

Creating and maintaining a cash flow forecast is a major task for every company. Not having a dedicated team to handle it makes report generation impossible. And if even one is created, there wouldn’t be anyone to update it and let you know the latest data analysis results. Like a snowball, a series of the above mentioned challenges will surely accumulate.

The Workaround

There are plenty of choices a company can go for to hire a bookkeeper and accountant to handle forecasts. An in-house accountant is the traditional choice, but you can also choose to work with remote team members and freelancers. With these choices, building a dedicated team to handle forecasting becomes easier.

Your finance team will ensure your business has a defined forecasting process, an efficient way to acquire and manage data, and the best software to make forecasting cash flow easier and more accurate.

Cash Flow Forecast Solutions by Unloop

With cash forecasting being so important to any business’s success, startups must understand common challenges and how to avoid them. We hope that these common challenges startups face when forecasting cash flow and some workarounds have helped you. At Unloop, we have seen firsthand how important cash flow forecasts are to businesses. Proper forecasts can help businesses stretch their budgets and stay ahead of payments. With that in mind, take advantage of our forecasting services to experience the power of having a reliable and secure forecasting platform at your fingertips. Call us today!

Read more

Monitoring your business's accounts payable is crucial to determine the state of its financial health. Accurate forecasting allows you to gain control of your cash flow. In addition, knowing when your payments are due builds a good relationship with your suppliers and opens up strategies for money-saving plans for your payables.

Forecasting accounts payable may not be your priority when handling business accounting, but it can benefit your business. In this blog post, we'll talk more about forecasting accounts payable so you know how to do it for your business.

Accounts Payable and Forecasting

Accounts payable refers to short-term liabilities a business needs to pay off within a year or a shorter time frame. Understanding and seeing your business expenses fully allows you to do the groundwork for building a suitable budget for your business.

Forecasting will help you prepare to meet your payments by considering different scenarios. For example, if the price of raw materials increase or third-party fees change their rates, you can ensure your business can still fulfill its obligations and make wise decisions regarding your business finances.

Ways To Do Accounts Payable Forecasting

You can monitor the money going out of your business in several ways. Here are some things you can do to help you build an accurate accounts payable forecast.

Understand Spending Patterns

The payment patterns for your business are an important piece of information in creating an accurate forecast. Your expenses on payroll and inventory are relatively consistent month to month and easier to track. But always look at past spending data to see accurate patterns.

For example, look at the months you spend more on inventory. Some of your items may be in demand in certain months, so be mindful of that so you can plan your budget accordingly. You can also accumulate your past invoices to have a picture of where your money is going.

Noticing the patterns will also help you see where you can save, which can be good for your cash flow.

Be Up to Date With Industry Trends

Understanding trends in the marketplace, like technological advances and consumer behaviour, will help determine if these changes can affect your business payables. Changes in the industry are quick, and if you're not keen enough to see them, you may fall behind, which can make your forecast less accurate.

You can track some marketing trends by:

  • Being updated on the news about changes and developments related to your field.
  • Using data analytics to see possible trend changes. An analytics tool is easier and can predict trends before they even happen, so you’ll always be a step ahead.

Use and Analyze Historical Data

Using historical data is advantageous for forecasting because many methods maximize historical data. The most common way of using past data is through extrapolation. However, there's room for error with this method because it doesn't consider the changes that happened in your business.

Statistical modelling is a more accurate method for creating accounts payable forecasts. This method helps business owners identify behavior in ways businesses do their payments and create a forecast based on its current conditions. This forecasting method is the most accurate but requires a huge investment in time and resources.

If you're new to forecasting, it is best to use both methods for the best results. Then, play with the strength of each method to make better business decisions.

Track Invoices and Payment Deadlines

You need all the data to create an accurate forecast. That's why it is crucial that you keep track of your invoices and dues. Here are some ways to do it effectively:

  • Input all your outstanding invoices and their dues into a spreadsheet. Doing this will help you see which of your payments are nearing their deadlines so you can plan accordingly.
  • Set up timely calendar reminders using accounting software. Better yet, automate your entire accounts payable process to ensure you don't miss any of your upcoming liabilities.

Invest in Accounting Software

Accounting software is a valuable tool for businesses. Think of it as a virtual assistant that handles certain tasks that you can't because your hands are full. For example, you can start with a Microsoft Excel spreadsheet to organize your cash flow in a certain accounting period. Although this may keep things organized, you still have to input data and create financial statements manually when needed.

If you want something more convenient, there are several accounting software you can choose from. These software options can perform basic accounting tasks and even more complex ones. Furthermore, they can produce financial statements like income statements, balance sheets, and other reports in just a few clicks.

Some even have a feature to create financial models for your business based on the data you input into the system. The right accounting software will help create your business's accurate accounts payable forecast.

How To Calculate Expected Accounts Payable

Knowing how much you need to pay at the end of each period will help you plan your budget. Fortunately, there is a simple calculation method that allows you to get an overview of your expected accounts payables.

Here is how to do it:

  • Determine the average number of days you need to pay your invoices.
  • Determine the total amount you need to pay suppliers.

Once you have this data, you can simply follow the formula:

(Current liabilities)/(Total operating cash/Number of days) = Expected accounts payable

So, for example, if your business has an outstanding liability of $10,000 and your total 

operating cost is $25,000, and you have 25 days to complete your payments. You can calculate your expected payables by:

(10,000)/(25,000/25) = $10,000

You can expect your business needs to pay $10,000 by the end of 25 days.

Benefits of Doing Accounts Payable Forecasts

Forecasting is an optional part of accounting, and some business owners find it unnecessary. However, forecasting is a good move for your business if you want a clearer view of your financial ratios. Here are some benefits of doing it.

Helps Maximize Working Capital

The results of the accounts payable forecast are valuable for improving your cash flow forecasting. This will help get key insights into how much of your working capital is available for business growth and investment. In addition, a clear picture of your forecast will help you maximize your working capital more confidently and risk-free.

Establishes Good Vendor Relationships

Nothing makes your suppliers happier than you paying them on time. Forecasting accounts payable will help you see your deliverables ahead of time so you won't incur late payments. In addition, timely payments build trust and good relationships with your suppliers.

Moreover, forecasting helps you identify if you will run into problems with your payments. This way, you can give your suppliers a warning if there's no choice but to delay your payments.

Lessens Payment Disruptions

Knowing your expected liabilities will help prevent disruptions in your payments. Understanding how much working capital comes in and out of your business in a specific period will help you eliminate risks and other potential disruptions.

Forecasting Accounts Payable With Unloop

Now that you have an overview of how forecasting accounts payable can benefit your business, you should start planning how you can forecast. Forecasting is not an easy task, so it is better to have a professional handle this for you.

Unloop offers AP forecasting for small ecommerce businesses. Our team of experts will ensure:

  • Your business will always pay suppliers on time.
  • Automation for all your payable workflows using accounting software, so you save time from inputting data manually.
  • The lowest possible rate for foreign payables, as we can handle foreign currency as well.

Unloop can handle all your accounts payable needs and even other accounting needs. Our team is ready to work with you on your bookkeeping, income tax, payroll, financial forecasts, and accounting. Book a call and work with us today!

Stop Going Over Budget: Forecasting Accounts Payable for Businesses
Watch Now

Monitoring your business's accounts payable is crucial to determine the state of its financial health. Accurate forecasting allows you to gain control of your cash flow. In addition, knowing when your payments are due builds a good relationship with your suppliers and opens up strategies for money-saving plans for your payables.

Forecasting accounts payable may not be your priority when handling business accounting, but it can benefit your business. In this blog post, we'll talk more about forecasting accounts payable so you know how to do it for your business.

Accounts Payable and Forecasting

Accounts payable refers to short-term liabilities a business needs to pay off within a year or a shorter time frame. Understanding and seeing your business expenses fully allows you to do the groundwork for building a suitable budget for your business.

Forecasting will help you prepare to meet your payments by considering different scenarios. For example, if the price of raw materials increase or third-party fees change their rates, you can ensure your business can still fulfill its obligations and make wise decisions regarding your business finances.

Ways To Do Accounts Payable Forecasting

You can monitor the money going out of your business in several ways. Here are some things you can do to help you build an accurate accounts payable forecast.

Understand Spending Patterns

The payment patterns for your business are an important piece of information in creating an accurate forecast. Your expenses on payroll and inventory are relatively consistent month to month and easier to track. But always look at past spending data to see accurate patterns.

For example, look at the months you spend more on inventory. Some of your items may be in demand in certain months, so be mindful of that so you can plan your budget accordingly. You can also accumulate your past invoices to have a picture of where your money is going.

Noticing the patterns will also help you see where you can save, which can be good for your cash flow.

Be Up to Date With Industry Trends

Understanding trends in the marketplace, like technological advances and consumer behaviour, will help determine if these changes can affect your business payables. Changes in the industry are quick, and if you're not keen enough to see them, you may fall behind, which can make your forecast less accurate.

You can track some marketing trends by:

  • Being updated on the news about changes and developments related to your field.
  • Using data analytics to see possible trend changes. An analytics tool is easier and can predict trends before they even happen, so you’ll always be a step ahead.

Use and Analyze Historical Data

Using historical data is advantageous for forecasting because many methods maximize historical data. The most common way of using past data is through extrapolation. However, there's room for error with this method because it doesn't consider the changes that happened in your business.

Statistical modelling is a more accurate method for creating accounts payable forecasts. This method helps business owners identify behavior in ways businesses do their payments and create a forecast based on its current conditions. This forecasting method is the most accurate but requires a huge investment in time and resources.

If you're new to forecasting, it is best to use both methods for the best results. Then, play with the strength of each method to make better business decisions.

Track Invoices and Payment Deadlines

You need all the data to create an accurate forecast. That's why it is crucial that you keep track of your invoices and dues. Here are some ways to do it effectively:

  • Input all your outstanding invoices and their dues into a spreadsheet. Doing this will help you see which of your payments are nearing their deadlines so you can plan accordingly.
  • Set up timely calendar reminders using accounting software. Better yet, automate your entire accounts payable process to ensure you don't miss any of your upcoming liabilities.

Invest in Accounting Software

Accounting software is a valuable tool for businesses. Think of it as a virtual assistant that handles certain tasks that you can't because your hands are full. For example, you can start with a Microsoft Excel spreadsheet to organize your cash flow in a certain accounting period. Although this may keep things organized, you still have to input data and create financial statements manually when needed.

If you want something more convenient, there are several accounting software you can choose from. These software options can perform basic accounting tasks and even more complex ones. Furthermore, they can produce financial statements like income statements, balance sheets, and other reports in just a few clicks.

Some even have a feature to create financial models for your business based on the data you input into the system. The right accounting software will help create your business's accurate accounts payable forecast.

How To Calculate Expected Accounts Payable

Knowing how much you need to pay at the end of each period will help you plan your budget. Fortunately, there is a simple calculation method that allows you to get an overview of your expected accounts payables.

Here is how to do it:

  • Determine the average number of days you need to pay your invoices.
  • Determine the total amount you need to pay suppliers.

Once you have this data, you can simply follow the formula:

(Current liabilities)/(Total operating cash/Number of days) = Expected accounts payable

So, for example, if your business has an outstanding liability of $10,000 and your total 

operating cost is $25,000, and you have 25 days to complete your payments. You can calculate your expected payables by:

(10,000)/(25,000/25) = $10,000

You can expect your business needs to pay $10,000 by the end of 25 days.

Benefits of Doing Accounts Payable Forecasts

Forecasting is an optional part of accounting, and some business owners find it unnecessary. However, forecasting is a good move for your business if you want a clearer view of your financial ratios. Here are some benefits of doing it.

Helps Maximize Working Capital

The results of the accounts payable forecast are valuable for improving your cash flow forecasting. This will help get key insights into how much of your working capital is available for business growth and investment. In addition, a clear picture of your forecast will help you maximize your working capital more confidently and risk-free.

Establishes Good Vendor Relationships

Nothing makes your suppliers happier than you paying them on time. Forecasting accounts payable will help you see your deliverables ahead of time so you won't incur late payments. In addition, timely payments build trust and good relationships with your suppliers.

Moreover, forecasting helps you identify if you will run into problems with your payments. This way, you can give your suppliers a warning if there's no choice but to delay your payments.

Lessens Payment Disruptions

Knowing your expected liabilities will help prevent disruptions in your payments. Understanding how much working capital comes in and out of your business in a specific period will help you eliminate risks and other potential disruptions.

Forecasting Accounts Payable With Unloop

Now that you have an overview of how forecasting accounts payable can benefit your business, you should start planning how you can forecast. Forecasting is not an easy task, so it is better to have a professional handle this for you.

Unloop offers AP forecasting for small ecommerce businesses. Our team of experts will ensure:

  • Your business will always pay suppliers on time.
  • Automation for all your payable workflows using accounting software, so you save time from inputting data manually.
  • The lowest possible rate for foreign payables, as we can handle foreign currency as well.

Unloop can handle all your accounts payable needs and even other accounting needs. Our team is ready to work with you on your bookkeeping, income tax, payroll, financial forecasts, and accounting. Book a call and work with us today!

Read more

Finances keep your business running. That's why managing it can make or break a business. But as new business owners, it can be confusing to handle money, and you might be spending them on things that could be devastating for your business.

For small businesses in particular, every penny counts, and managing finances is not always simple. In this article, we'll outline a few of the most typical errors that small business owners make that might hurt their company.

Making Unnecessary Large Purchases

It is alright to feel excited about opening your business. But often, this excitement turns into unnecessary spending. Buying office space or furniture to make the area cozy can be tempting. There are also pieces of equipment and technology to splurge on. But before buying these things, make sure you need them.

When you have a small business, you can start with the basics. As your business grows and you earn more, you can continuously upgrade. Moreover, don't get business loans you can't pay back. The money you get will allow you to buy things, but if you don't have enough income to pay it back, your business won't generate profit or have the finances to keep operations running.

No Emergency Funds or Savings

All businesses should have prepared emergency funds. There's always a possibility that an unwanted event will happen, and most of the time, it will cost you money. You can't always rely on the daily profits since you always have expenses to settle.

With emergency funds, preventing damages to your business will be easier. For example, when a piece of your equipment malfunctions or breaks, you’ll need a large sum of money to repair it. In worse scenarios, you’ll need to replace it. There will also be months when business is slow, and emergency funds can keep your operations running.

Overlooking Unpaid Invoices

Every payment is essential for a small business. But many businesses need to pay more attention to their unpaid invoices. According to recent studies, almost 65% of businesses have unpaid invoices from their clients. That is a lot of money you lose if you're not settling with your clients.

Make it a habit to track your invoices. Send regular notifications to your clients regarding their dues. You can add penalties to overdue payments so clients are forced to pay your business more diligently.

Failing To Plan for Tax Obligations

Running a business also means you have tax obligations to fulfill. Many business owners focus on marketing strategies, sales, and other aspects that they often forget to consider taxes. Business taxes can be heavy when you pay them all at the end of the fiscal year.

You can plan them quarterly, so your business's cash flow will not be interrupted. Planning for your taxes will also help you distribute your business finances equally for your required expenses.

Poor Cash Flow Management

Many business owners fail to realize the importance of a positive cash flow. The main focus of cash flow is the money that enters and exits your company. Of course, it's good for your business's finances if cash continues to go into your business. The profit and loss statement can help you identify any cash flow problems early on.

However, there are also business-related expenses you should know of. There's inventory you need to track so you can keep selling and meeting your customers' needs. There are bills to pay, like rent, electricity, and other fees for business operations. Managing small business finances properly can help you balance your income and expenses.

Small business owners often think they have sound financial management if their expenses are paid. Always check your balance sheet to see if the money going out and in is balanced and will still make you profitable.

business financial report

Failing To Recognize Cash From Profit

One of the most common mistakes of business owners is confusing cash and profit. For example, your business generates $1000 per week, and your expenses add up to $450. The cash you have on hand is $1000, and the profit you generate is $550.

In a month, you can expect to earn $4000 with $2200 to pay in expenses. If the business is stable and income is consistent, your expenses will be covered. But remember, business can be slow and unpredictable things can happen. The $4000 may not come in time, and you may not have enough to cover your expenses, leading to your business's downfall.

Using Business Funds for Personal Finances

When business is doing good, and you are earning a lot, buying the things you want and using business profit for personal expenses can be tempting. But it is most practical to keep your personal and professional accounts separate which a lot of small business owners find it challenging to do.

While it makes sense to use your profit for your personal needs since you own the business, remember that a part of your profits should be invested for future growth. Moreover, business profits are used to assess your business's financial health.

No Clear Budget Planning

Creating a budget is crucial for every business. When you have a clearly drawn budget for your business, you’ll have an accurate expectation of your future expenses. From business loans to buying inventory, paying your tax obligations, and employee payroll, you can ensure to fulfill all your business expenses.

It's inevitable that you can make mistakes in managing business finances. However, by having a financial plan, you may anticipate and prevent them. Furthermore, creating a budget plan allows you to see different situations that can happen to your business.

Accounting Software for Financial Management Needs

Don't underestimate small business financial management. When it comes to business, dealing with money is difficult. Fortunately, technology has caught up, and accounting software makes basic financial management for small businesses easy.

Investing in accounting software will make business financing easier, especially for owners new to the business. Here are some reasons why using accounting software for your business is beneficial.

  • The software has an automatic expense tracking feature so businesses can stay on top of their spending and analyze their patterns to maximize their cash flow.
  • Accounting software can store business transactions to help generate reports for your business.
  • It can help you with tax compliance. Reliable accounting solutions will help you adhere to tax regulations. The software can accurately calculate your business's tax obligations and notify you when payments are due.
  • Accounting systems create invoices and send them to your clients. They will help you keep track of the payments due to your business.
  • Accounting software options can be integrated into payment channels. This feature will give your clients a secure payment channel and make it easier for your business to store records of transactions.
accountant for business finance management

Get Professional Financial Management for Small Businesses at Unloop

Business finances go hand in hand with accounting, and it's not every business owner's cup of tea. Unloop offers accounting services for small businesses that need help with their financial management. We offer services for forecasting, payroll, bookkeeping, accounts payable, and taxes.
Don't let messy finances hinder your path to success. Get professional help today! Book a call with us and talk to an expert for free.

8 Small Business Financial Management Mistakes That Can Kill Your Business
Watch Now

Finances keep your business running. That's why managing it can make or break a business. But as new business owners, it can be confusing to handle money, and you might be spending them on things that could be devastating for your business.

For small businesses in particular, every penny counts, and managing finances is not always simple. In this article, we'll outline a few of the most typical errors that small business owners make that might hurt their company.

Making Unnecessary Large Purchases

It is alright to feel excited about opening your business. But often, this excitement turns into unnecessary spending. Buying office space or furniture to make the area cozy can be tempting. There are also pieces of equipment and technology to splurge on. But before buying these things, make sure you need them.

When you have a small business, you can start with the basics. As your business grows and you earn more, you can continuously upgrade. Moreover, don't get business loans you can't pay back. The money you get will allow you to buy things, but if you don't have enough income to pay it back, your business won't generate profit or have the finances to keep operations running.

No Emergency Funds or Savings

All businesses should have prepared emergency funds. There's always a possibility that an unwanted event will happen, and most of the time, it will cost you money. You can't always rely on the daily profits since you always have expenses to settle.

With emergency funds, preventing damages to your business will be easier. For example, when a piece of your equipment malfunctions or breaks, you’ll need a large sum of money to repair it. In worse scenarios, you’ll need to replace it. There will also be months when business is slow, and emergency funds can keep your operations running.

Overlooking Unpaid Invoices

Every payment is essential for a small business. But many businesses need to pay more attention to their unpaid invoices. According to recent studies, almost 65% of businesses have unpaid invoices from their clients. That is a lot of money you lose if you're not settling with your clients.

Make it a habit to track your invoices. Send regular notifications to your clients regarding their dues. You can add penalties to overdue payments so clients are forced to pay your business more diligently.

Failing To Plan for Tax Obligations

Running a business also means you have tax obligations to fulfill. Many business owners focus on marketing strategies, sales, and other aspects that they often forget to consider taxes. Business taxes can be heavy when you pay them all at the end of the fiscal year.

You can plan them quarterly, so your business's cash flow will not be interrupted. Planning for your taxes will also help you distribute your business finances equally for your required expenses.

Poor Cash Flow Management

Many business owners fail to realize the importance of a positive cash flow. The main focus of cash flow is the money that enters and exits your company. Of course, it's good for your business's finances if cash continues to go into your business. The profit and loss statement can help you identify any cash flow problems early on.

However, there are also business-related expenses you should know of. There's inventory you need to track so you can keep selling and meeting your customers' needs. There are bills to pay, like rent, electricity, and other fees for business operations. Managing small business finances properly can help you balance your income and expenses.

Small business owners often think they have sound financial management if their expenses are paid. Always check your balance sheet to see if the money going out and in is balanced and will still make you profitable.

business financial report

Failing To Recognize Cash From Profit

One of the most common mistakes of business owners is confusing cash and profit. For example, your business generates $1000 per week, and your expenses add up to $450. The cash you have on hand is $1000, and the profit you generate is $550.

In a month, you can expect to earn $4000 with $2200 to pay in expenses. If the business is stable and income is consistent, your expenses will be covered. But remember, business can be slow and unpredictable things can happen. The $4000 may not come in time, and you may not have enough to cover your expenses, leading to your business's downfall.

Using Business Funds for Personal Finances

When business is doing good, and you are earning a lot, buying the things you want and using business profit for personal expenses can be tempting. But it is most practical to keep your personal and professional accounts separate which a lot of small business owners find it challenging to do.

While it makes sense to use your profit for your personal needs since you own the business, remember that a part of your profits should be invested for future growth. Moreover, business profits are used to assess your business's financial health.

No Clear Budget Planning

Creating a budget is crucial for every business. When you have a clearly drawn budget for your business, you’ll have an accurate expectation of your future expenses. From business loans to buying inventory, paying your tax obligations, and employee payroll, you can ensure to fulfill all your business expenses.

It's inevitable that you can make mistakes in managing business finances. However, by having a financial plan, you may anticipate and prevent them. Furthermore, creating a budget plan allows you to see different situations that can happen to your business.

Accounting Software for Financial Management Needs

Don't underestimate small business financial management. When it comes to business, dealing with money is difficult. Fortunately, technology has caught up, and accounting software makes basic financial management for small businesses easy.

Investing in accounting software will make business financing easier, especially for owners new to the business. Here are some reasons why using accounting software for your business is beneficial.

  • The software has an automatic expense tracking feature so businesses can stay on top of their spending and analyze their patterns to maximize their cash flow.
  • Accounting software can store business transactions to help generate reports for your business.
  • It can help you with tax compliance. Reliable accounting solutions will help you adhere to tax regulations. The software can accurately calculate your business's tax obligations and notify you when payments are due.
  • Accounting systems create invoices and send them to your clients. They will help you keep track of the payments due to your business.
  • Accounting software options can be integrated into payment channels. This feature will give your clients a secure payment channel and make it easier for your business to store records of transactions.
accountant for business finance management

Get Professional Financial Management for Small Businesses at Unloop

Business finances go hand in hand with accounting, and it's not every business owner's cup of tea. Unloop offers accounting services for small businesses that need help with their financial management. We offer services for forecasting, payroll, bookkeeping, accounts payable, and taxes.
Don't let messy finances hinder your path to success. Get professional help today! Book a call with us and talk to an expert for free.

Read more

Revenue and expenses are a core part of running a business. You can operate your day-to-day business activities smoothly if you keep them in balance. You can employ several strategies to control your expenses and help grow your revenue.

The path to business success is a long and tedious one, but it's not impossible. Business finances are messy, and here we have some tips to help manage them effectively. Revenue and expenses go hand in hand. Take note of these tips to help you handle them better.

4 Tips To Control Business Expenses

Expenses will play a huge role in your financial health. Expenses are costs that a business incurs to pay and run business operations. This covers everything from paying your rent and buying equipment to costs for packing and shipping.

Here are some suggestions for managing your company's expenses.

Plan and Stick to Your Budget

One of the most effective ways to have control over your budget is to start with a plan and stick to it. Creating a budget should be practical and applicable to your industry. You need to research your spending patterns and behaviors in order to develop a successful plan.

Annual budgeting is most common, but unforeseen circumstances could make you go off budget. You can control your expenses by drawing up monthly budget plans. This way, you can review and see if you are on track with your overall budget.

But more significantly, you must adhere to your spending plan. Making a budget is useless if you're not committed to sticking to it.

Document All Expenses

Make it a habit to keep all your receipts. You can record them manually or invest in software to help keep track of your expenses. Software features allow you to capture photos of receipts and store them as data so you can guarantee you don't lose your records.

Furthermore, documentation of expenses is also helpful for taxes. Certain operating expenses can be eligible for tax deductions to lessen your tax liabilities. Keeping a detailed track of your expenses helps you see the areas when you could be overspending to help you strategize your spending patterns.

Keep Track of Fixed Costs

Many business owners don't pay mind to fixed costs since they are recurring payments. Fixed costs often come from partnerships between merchants and suppliers. After a while, you will think you have a good deal with your suppliers if they don't change their prices. But it would help if you check market offers periodically.

You can start reducing expenses by finding better deals regarding your fixed costs. Get regular quotes to ensure that you are spending your finances correctly.

Invest in Technology

It's understandable that most business owners believe manual processes are cheaper. Imagine if you have a small business with a dedicated team for packing and shipping orders.

Advanced equipment may look like massive investments at first, but machines can do repetitive tasks equivalent to several people. This means you'll need fewer people to hire, which saves money in the long run.

revenue increase

6 Ways To Boost Company Revenue

Business revenue is the total income a business generates from its product sales or by providing services. Revenue is also known as gross income and referred to as the top line because it is typically seen on top of an income statement.

On the other hand, profit or net income is a company's total earnings after business expenses have been deducted. The balance between gains and losses will keep a business running. Here are some helpful tips to generate revenue.

Encourage Repeat Customers

Most companies spend time and assets to gain new customers but often neglect customers to repeat business. Building trust with your consumers will drive them to use your services again.

One effective way to persuade your customers to repeat their purchases from your business is through email. Once your clients join your email list, it allows you to communicate with them. You can solicit their opinion and keep them informed about special offers and new products. They are more inclined to repurchase your goods or services once you have earned their confidence. 

Use Coupons and Discounts

Who can resist coupons and discounts? You can use this strategy to funnel sales to your business. Of course, you have to be smart about it. You won't be making sales if all of your customers are granted discounts.

Your most devoted and active clients may receive discounts. These can be used as a thank you gift for buying your products. You can also give discounts to people who purchase a certain amount. For example, you can have promos for people who purchase more than $300.

Coupons, on the other hand, are great for new customers. For example, first-time buyers can have a 5% discount on their first purchase. Coupons such as this will entice new customers to try and purchase your products.

A Well-Designed Website Will Take You to New Heights

In the United States, over 70% of people prefer to shop online, if you don’t have a well-built website, your competitors will surely outshine your business. Easy navigation and positive user experience can encourage customers to purchase from your business.

Make sure all elements in your website are working and reflect the branding of your business. It should contain all the information your customer needs and make the purchasing process easy for them—from choosing the product or service to processing their payment. 

Outsource Your Business Marketing

Juggling and managing your time with running a business is a difficult task. You may not want to admit it, but there are other aspects of your business that you fail to give attention to. Marketing your business allows you to gain customers. More customers mean more income.

However, marketing is challenging with so many things on your plate. Instead of forcing yourself, outsource your marketing needs to a professional. These services can guarantee that your investment is worth the price and will help scale your businesses.

Expand Your Reach

You reach more customers as you venture further. Consider opening new branches in different cities if you have a physical store to attract more clients. For your ecommerce counterpart, you can widen your shipping options.

Small businesses usually start deliveries locally, but you can extend your reach nationwide or internationally. Look for shipping partners that will give the best deals to help you reach more customers.

Upsell Your Products

Even big companies use this strategy to increase their total revenue. Offering a higher-priced product can help simple transactions turn into valuable ones. The process of upselling is offering your customer a better version of their original choice. A great example is mobile phones. Companies usually offer products with bigger memory or better performance for a higher price.

Just remember, when you upsell your products, it should be something related to the original choice to find success in your upsell strategy. If they are buying a mobile phone, upsell a better version—not a laptop or other types of gadgets.

business expense receipts

Get Financial Accounting Services at Unloop

Managing your expenses and revenue also includes accounting. Accounting helps owners see their company's financial performance and prepares their business for tax season. When it comes to accounting, Unloop offers different services for small ecommerce businesses.

If you need help managing your revenue and expenses, our bookkeeping services will help you keep up with your business finances. Our services include:

  • Preparing financial statements such as income statements, balance sheets and cash flow statements.
  • Integrating your business to accounting software such as QuickBooks or Xero so you can have real-time updates of your expenses and income.
  • Filing and preparing taxes by our partner firms or your own CPAs to keep you on top of your company's obligations.
  • Using the accrual accounting method for creating financial statements and creating custom analytics for your business every 15th of the month.
  • Unlimited support from our experts through Slack.

Keeping track of how much your company earns and spends in a specific period keeps your business operations steady and running. Managing expenses and revenue is a challenge, and we hope these tips help you understand and handle your finances better.
For more accounting services, Unloop also offers payroll, taxes, forecasting and accounts payables. Book a call with us now and talk to an expert for free!

Control and Grow: Tips To Effectively Manage Business Revenue and Expenses
Watch Now

Revenue and expenses are a core part of running a business. You can operate your day-to-day business activities smoothly if you keep them in balance. You can employ several strategies to control your expenses and help grow your revenue.

The path to business success is a long and tedious one, but it's not impossible. Business finances are messy, and here we have some tips to help manage them effectively. Revenue and expenses go hand in hand. Take note of these tips to help you handle them better.

4 Tips To Control Business Expenses

Expenses will play a huge role in your financial health. Expenses are costs that a business incurs to pay and run business operations. This covers everything from paying your rent and buying equipment to costs for packing and shipping.

Here are some suggestions for managing your company's expenses.

Plan and Stick to Your Budget

One of the most effective ways to have control over your budget is to start with a plan and stick to it. Creating a budget should be practical and applicable to your industry. You need to research your spending patterns and behaviors in order to develop a successful plan.

Annual budgeting is most common, but unforeseen circumstances could make you go off budget. You can control your expenses by drawing up monthly budget plans. This way, you can review and see if you are on track with your overall budget.

But more significantly, you must adhere to your spending plan. Making a budget is useless if you're not committed to sticking to it.

Document All Expenses

Make it a habit to keep all your receipts. You can record them manually or invest in software to help keep track of your expenses. Software features allow you to capture photos of receipts and store them as data so you can guarantee you don't lose your records.

Furthermore, documentation of expenses is also helpful for taxes. Certain operating expenses can be eligible for tax deductions to lessen your tax liabilities. Keeping a detailed track of your expenses helps you see the areas when you could be overspending to help you strategize your spending patterns.

Keep Track of Fixed Costs

Many business owners don't pay mind to fixed costs since they are recurring payments. Fixed costs often come from partnerships between merchants and suppliers. After a while, you will think you have a good deal with your suppliers if they don't change their prices. But it would help if you check market offers periodically.

You can start reducing expenses by finding better deals regarding your fixed costs. Get regular quotes to ensure that you are spending your finances correctly.

Invest in Technology

It's understandable that most business owners believe manual processes are cheaper. Imagine if you have a small business with a dedicated team for packing and shipping orders.

Advanced equipment may look like massive investments at first, but machines can do repetitive tasks equivalent to several people. This means you'll need fewer people to hire, which saves money in the long run.

revenue increase

6 Ways To Boost Company Revenue

Business revenue is the total income a business generates from its product sales or by providing services. Revenue is also known as gross income and referred to as the top line because it is typically seen on top of an income statement.

On the other hand, profit or net income is a company's total earnings after business expenses have been deducted. The balance between gains and losses will keep a business running. Here are some helpful tips to generate revenue.

Encourage Repeat Customers

Most companies spend time and assets to gain new customers but often neglect customers to repeat business. Building trust with your consumers will drive them to use your services again.

One effective way to persuade your customers to repeat their purchases from your business is through email. Once your clients join your email list, it allows you to communicate with them. You can solicit their opinion and keep them informed about special offers and new products. They are more inclined to repurchase your goods or services once you have earned their confidence. 

Use Coupons and Discounts

Who can resist coupons and discounts? You can use this strategy to funnel sales to your business. Of course, you have to be smart about it. You won't be making sales if all of your customers are granted discounts.

Your most devoted and active clients may receive discounts. These can be used as a thank you gift for buying your products. You can also give discounts to people who purchase a certain amount. For example, you can have promos for people who purchase more than $300.

Coupons, on the other hand, are great for new customers. For example, first-time buyers can have a 5% discount on their first purchase. Coupons such as this will entice new customers to try and purchase your products.

A Well-Designed Website Will Take You to New Heights

In the United States, over 70% of people prefer to shop online, if you don’t have a well-built website, your competitors will surely outshine your business. Easy navigation and positive user experience can encourage customers to purchase from your business.

Make sure all elements in your website are working and reflect the branding of your business. It should contain all the information your customer needs and make the purchasing process easy for them—from choosing the product or service to processing their payment. 

Outsource Your Business Marketing

Juggling and managing your time with running a business is a difficult task. You may not want to admit it, but there are other aspects of your business that you fail to give attention to. Marketing your business allows you to gain customers. More customers mean more income.

However, marketing is challenging with so many things on your plate. Instead of forcing yourself, outsource your marketing needs to a professional. These services can guarantee that your investment is worth the price and will help scale your businesses.

Expand Your Reach

You reach more customers as you venture further. Consider opening new branches in different cities if you have a physical store to attract more clients. For your ecommerce counterpart, you can widen your shipping options.

Small businesses usually start deliveries locally, but you can extend your reach nationwide or internationally. Look for shipping partners that will give the best deals to help you reach more customers.

Upsell Your Products

Even big companies use this strategy to increase their total revenue. Offering a higher-priced product can help simple transactions turn into valuable ones. The process of upselling is offering your customer a better version of their original choice. A great example is mobile phones. Companies usually offer products with bigger memory or better performance for a higher price.

Just remember, when you upsell your products, it should be something related to the original choice to find success in your upsell strategy. If they are buying a mobile phone, upsell a better version—not a laptop or other types of gadgets.

business expense receipts

Get Financial Accounting Services at Unloop

Managing your expenses and revenue also includes accounting. Accounting helps owners see their company's financial performance and prepares their business for tax season. When it comes to accounting, Unloop offers different services for small ecommerce businesses.

If you need help managing your revenue and expenses, our bookkeeping services will help you keep up with your business finances. Our services include:

  • Preparing financial statements such as income statements, balance sheets and cash flow statements.
  • Integrating your business to accounting software such as QuickBooks or Xero so you can have real-time updates of your expenses and income.
  • Filing and preparing taxes by our partner firms or your own CPAs to keep you on top of your company's obligations.
  • Using the accrual accounting method for creating financial statements and creating custom analytics for your business every 15th of the month.
  • Unlimited support from our experts through Slack.

Keeping track of how much your company earns and spends in a specific period keeps your business operations steady and running. Managing expenses and revenue is a challenge, and we hope these tips help you understand and handle your finances better.
For more accounting services, Unloop also offers payroll, taxes, forecasting and accounts payables. Book a call with us now and talk to an expert for free!

Read more

Debit or credit? The question can confuse most beginner business owners since, to the average person, it can mean the same thing in certain situations. However, debit and credit are far more different than they are similar. This article will help you settle the debits vs. credits question once and for all.

Financial Give and Take: The Credit and Debit Difference

To understand debit and credit, we have to go back to the basics of business finances: money coming in, and money coming out. It is the inevitable truth of business—you can't earn without spending, and you shouldn’t spend money without expecting returns.

This brings us to our main point: the credit and debit difference. It's an ongoing cycle, give and take. Debit and credit just give us a sharper idea of which goes where.

What Is the Difference Between Credit and Debit?

At first glance, the difference between debit and credit seems pretty straightforward. Debit, since it brings in money for the business, is the one that gives, while credit, which connotes loans and payments, takes.

But if you keep track of your financial transactions and look closely enough, you'll realize that debit and credit are not just fancy accounting jargon, and accounting for each can get pretty complicated. So what's the main difference between the two accounts?

Let's go back to give and take. Businesses live off customers' payments in exchange for goods and services and make investments to maintain or even improve their operations. Customers give you money, and you take money from your budget to pay for necessary expenses.

When a customer pays for services, their money becomes the company's money to do with as they see fit. Such payments can be considered “assets”—resources under a company's control. Assets can be anything from hard cash to vehicles or properties.

But when it's the company's turn to make payments to other entities—whether in the form of investments, expenses, or refunds—they relinquish control of the money in their possession, turning them into a “liability”: a resource or amount a business owes to another individual or business.

The Main Difference Between Debit and Credit

The main difference between debit and credit lies in assets and liabilities. A debit increases the value of assets while credit accounting increases the value of liabilities. So while the two both give in some areas, they also take in others, depending on the account.

Here are some examples of assets:

  • Cash
  • Property
  • Items/products
  • Automobiles
  • Earned income (accounts receivable)

Here are some examples of expense accounts or liability accounts:

  • Loans
  • Expenses (bills, purchases, operational expenses)
  • Promos
  • Cash advances
  • Equity accounts
  • Returns/refunds
  • Accounts payables

To better understand debit and credit, here are some examples of how they function in different accounts.

Bank or Cash Account

The balances in a bank and cash account are the simplest way to explain debit and credit. When someone deposits an amount into your bank account, you consider that a debit transaction because cash is an asset, and a deposit increases the amount or value of that asset. Essentially, bank debits are transactions wherein the asset account increases.

But when you pay for something, like bills or expenses, then those are considered credit transactions because you owe certain amounts to other individuals or businesses, taking away your control of the asset. Monthly payments on your prepaid debit cards or credit card bill increase your amount owed, making it a credit.

Revenue Accounts

Revenue includes expenses in the equation, making it a liability. So when a client pays a business a certain amount, that amount is entered into the books as a credit, even if it adds to your business's total income after expenses.

Debits in revenue are made when a customer returns an item or asks for a refund, increasing what your business owes to other entities.

Equity Accounts

Equity is what remains from the revenue after expenses. It is your profit to be divided among shareholders as their portion. Because it takes money from a business, equity accounts are considered liability accounts on the balance sheet. So if someone invests in your business, even if it helps your company financially, that will still be considered credit because the equity accounts increase.

If you're having trouble determining your profit, remember the accounting equation: liabilities minus expenses equals assets. Usually, the profit's dividends will depend on shareholders' equity.

Accounts Receivable

Accounts receivable are simply your business's earned but unpaid sales. Accounts receivable is considered an asset account because when customers pay for the services, the payments turn into cash for your company. Naturally, logging sales into the accounts receivable is considered a debit entry.

Accounts Payable

Accounts payable keeps track of how much the business owes, making it a liability. So money sent into this account guarantees it will be spent elsewhere, like suppliers or the company's bills, which is considered a credit transaction. This is usually how a credit card company does business.

Debits and credits filed separately.

The Importance of Tracking Debits and Credits

You probably think that debits and credits complicate the whole accounting process, which is true to some extent. It is complicated, but not without reason. Debits and credits give context to your business's financial health.

For example, in the two account systems, single-entry and double-entry accounting, borrowing money or a bank loan can be interpreted in different ways. In single-entry accounting, the loan is logged as income since it increases your company's funds. But in double-entry accounting, where transactions are labeled as a debit or credit entry, a loan is considered an expense, or a credit that the business will have to pay in the future.

See, if you only logged the loan as additional cash (which it is, but only temporarily), you risk forgetting it in the future and hurting your company's financial health. But if you log it as an expense now, you can better prepare for it in the future.

One of the best decisions you can make in favor of your business's financial health is deciding on an accounting method to use to track your finances.

Single-Entry Bookkeeping

If you run your business account on a single-entry system, you won’t have much of an issue since it's simpler: separate income and expense accounts; nothing more, nothing less. You can even manage your books with a single journal entry. You log incoming and outgoing money and mark the difference, which will be your profit.

However simple as it may be, single-entry bookkeeping or accounting poses problems for a businessman accounting for their finances using this process. First, single-entry accounting lacks context. Since you only account for income and expenses, you have only a vague idea of your business finances. Second, because of the lack of context, single-entry accounting cannot produce balance sheets, which leads to problems regarding taxes.

So what's a better choice?

Double-Entry Bookkeeping

Double-entry bookkeeping or accounting fixes the common problems with single-entry bookkeeping. A better financial context in a double-entry system allows you to make more accurate financial predictions. Consequently, you'll have fewer problems with the tax authorities since you'll be able to provide much needed details with a balance sheet.

Double-entry accounting takes assets, liabilities, and equity into consideration when assessing a company's financial situation. It takes asset and expense accounts and marks the debits and credits properly to make an accurate financial assessment.

With double-entry bookkeeping, you won't have to worry about making it to the end of your financial period since your accounting method keeps you up-to-date. Also, accounting software is usually optimized to record debits and credits properly, so it becomes less of a headache to do.

An accountants’ things after differentiating debit and credit.

Leave Your Bookkeeping to Unloop

Learning the difference between debit and credit is essential to the survival of your business finances. The average person will have trouble seeing which—they may even label the same transaction as both debit or credit without noticing.If doing your own accounting isn’t optimal, try a bookkeeping service. A good bookkeeping service can keep your books flawless and your business in great financial shape. Unloop can do this for you. Give us a call to find out how.

Give and Take: Debits vs. Credits
Watch Now

Debit or credit? The question can confuse most beginner business owners since, to the average person, it can mean the same thing in certain situations. However, debit and credit are far more different than they are similar. This article will help you settle the debits vs. credits question once and for all.

Financial Give and Take: The Credit and Debit Difference

To understand debit and credit, we have to go back to the basics of business finances: money coming in, and money coming out. It is the inevitable truth of business—you can't earn without spending, and you shouldn’t spend money without expecting returns.

This brings us to our main point: the credit and debit difference. It's an ongoing cycle, give and take. Debit and credit just give us a sharper idea of which goes where.

What Is the Difference Between Credit and Debit?

At first glance, the difference between debit and credit seems pretty straightforward. Debit, since it brings in money for the business, is the one that gives, while credit, which connotes loans and payments, takes.

But if you keep track of your financial transactions and look closely enough, you'll realize that debit and credit are not just fancy accounting jargon, and accounting for each can get pretty complicated. So what's the main difference between the two accounts?

Let's go back to give and take. Businesses live off customers' payments in exchange for goods and services and make investments to maintain or even improve their operations. Customers give you money, and you take money from your budget to pay for necessary expenses.

When a customer pays for services, their money becomes the company's money to do with as they see fit. Such payments can be considered “assets”—resources under a company's control. Assets can be anything from hard cash to vehicles or properties.

But when it's the company's turn to make payments to other entities—whether in the form of investments, expenses, or refunds—they relinquish control of the money in their possession, turning them into a “liability”: a resource or amount a business owes to another individual or business.

The Main Difference Between Debit and Credit

The main difference between debit and credit lies in assets and liabilities. A debit increases the value of assets while credit accounting increases the value of liabilities. So while the two both give in some areas, they also take in others, depending on the account.

Here are some examples of assets:

  • Cash
  • Property
  • Items/products
  • Automobiles
  • Earned income (accounts receivable)

Here are some examples of expense accounts or liability accounts:

  • Loans
  • Expenses (bills, purchases, operational expenses)
  • Promos
  • Cash advances
  • Equity accounts
  • Returns/refunds
  • Accounts payables

To better understand debit and credit, here are some examples of how they function in different accounts.

Bank or Cash Account

The balances in a bank and cash account are the simplest way to explain debit and credit. When someone deposits an amount into your bank account, you consider that a debit transaction because cash is an asset, and a deposit increases the amount or value of that asset. Essentially, bank debits are transactions wherein the asset account increases.

But when you pay for something, like bills or expenses, then those are considered credit transactions because you owe certain amounts to other individuals or businesses, taking away your control of the asset. Monthly payments on your prepaid debit cards or credit card bill increase your amount owed, making it a credit.

Revenue Accounts

Revenue includes expenses in the equation, making it a liability. So when a client pays a business a certain amount, that amount is entered into the books as a credit, even if it adds to your business's total income after expenses.

Debits in revenue are made when a customer returns an item or asks for a refund, increasing what your business owes to other entities.

Equity Accounts

Equity is what remains from the revenue after expenses. It is your profit to be divided among shareholders as their portion. Because it takes money from a business, equity accounts are considered liability accounts on the balance sheet. So if someone invests in your business, even if it helps your company financially, that will still be considered credit because the equity accounts increase.

If you're having trouble determining your profit, remember the accounting equation: liabilities minus expenses equals assets. Usually, the profit's dividends will depend on shareholders' equity.

Accounts Receivable

Accounts receivable are simply your business's earned but unpaid sales. Accounts receivable is considered an asset account because when customers pay for the services, the payments turn into cash for your company. Naturally, logging sales into the accounts receivable is considered a debit entry.

Accounts Payable

Accounts payable keeps track of how much the business owes, making it a liability. So money sent into this account guarantees it will be spent elsewhere, like suppliers or the company's bills, which is considered a credit transaction. This is usually how a credit card company does business.

Debits and credits filed separately.

The Importance of Tracking Debits and Credits

You probably think that debits and credits complicate the whole accounting process, which is true to some extent. It is complicated, but not without reason. Debits and credits give context to your business's financial health.

For example, in the two account systems, single-entry and double-entry accounting, borrowing money or a bank loan can be interpreted in different ways. In single-entry accounting, the loan is logged as income since it increases your company's funds. But in double-entry accounting, where transactions are labeled as a debit or credit entry, a loan is considered an expense, or a credit that the business will have to pay in the future.

See, if you only logged the loan as additional cash (which it is, but only temporarily), you risk forgetting it in the future and hurting your company's financial health. But if you log it as an expense now, you can better prepare for it in the future.

One of the best decisions you can make in favor of your business's financial health is deciding on an accounting method to use to track your finances.

Single-Entry Bookkeeping

If you run your business account on a single-entry system, you won’t have much of an issue since it's simpler: separate income and expense accounts; nothing more, nothing less. You can even manage your books with a single journal entry. You log incoming and outgoing money and mark the difference, which will be your profit.

However simple as it may be, single-entry bookkeeping or accounting poses problems for a businessman accounting for their finances using this process. First, single-entry accounting lacks context. Since you only account for income and expenses, you have only a vague idea of your business finances. Second, because of the lack of context, single-entry accounting cannot produce balance sheets, which leads to problems regarding taxes.

So what's a better choice?

Double-Entry Bookkeeping

Double-entry bookkeeping or accounting fixes the common problems with single-entry bookkeeping. A better financial context in a double-entry system allows you to make more accurate financial predictions. Consequently, you'll have fewer problems with the tax authorities since you'll be able to provide much needed details with a balance sheet.

Double-entry accounting takes assets, liabilities, and equity into consideration when assessing a company's financial situation. It takes asset and expense accounts and marks the debits and credits properly to make an accurate financial assessment.

With double-entry bookkeeping, you won't have to worry about making it to the end of your financial period since your accounting method keeps you up-to-date. Also, accounting software is usually optimized to record debits and credits properly, so it becomes less of a headache to do.

An accountants’ things after differentiating debit and credit.

Leave Your Bookkeeping to Unloop

Learning the difference between debit and credit is essential to the survival of your business finances. The average person will have trouble seeing which—they may even label the same transaction as both debit or credit without noticing.If doing your own accounting isn’t optimal, try a bookkeeping service. A good bookkeeping service can keep your books flawless and your business in great financial shape. Unloop can do this for you. Give us a call to find out how.

Read more

Stop guessing

Know exactly where your ecommerce business stands financially.
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About unloop

Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.

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