If you are running an e-commerce business, then there is no doubt that you have a lot on your plate. From keeping your customers happy to handling various transactions and multiple revenue streams, and, on top of all that, having to deal with tax regulations… It can all get a bit overwhelming and frustrating.
Of course, proper accounting is the key towards keeping your business financially healthy, and towards making the right business decisions. Yet, this particular aspect of running an ecommerce business can often be overlooked, not paid enough attention to, and neglected. All of that can lead to you making certain accounting mistakes that could cost you a lot as you try to grow your business.
There is, however, no doubt that you would much rather avoid those mistakes. But, in order to avoid them, you will first need to know what they are. So, what we are going to do right now is provide you with a list of common e-commerce accounting mistakes, as well as teach you how to actually avoid them. Without any further ado, thus, let us get started.
- Lumping Your Business and Personal Finances Together
Believe it or not, it is not uncommon for entrepreneurs to use the same account for their personal and business finances. This, however, is a mistake. Lumping those finances together can lead to confusion, as well as to complications in managing your finances. When you don’t know whether you’re paying something with your business or your personal money, keeping track is pretty difficult, and it can often be harmful for your company in the long run. To fix this, what you should do is open a dedicated account just for your business, as well as use separate cards for it, after which you can even introduce an accounting software solution to accurately track the expenses associated with that account.
- Misclassifying Expenses
Among those common accounting mistakes in e-commerce, this one certainly stands out as not only a frequent one, but also a rather serious one. If you misclassify your expenses, that can result in inaccurate financial statements, and, consequently, in inaccurate tax filings. How can you avoid this, though? Once again, you can use accounting software for proper classification, as well as regularly review and reconcile the expenses, so as to catch any errors early. Or, you can simply consult with an accounting professional and let them properly classify your expenses, thus not needing to worry about any kinds of mistakes.
- Not Accounting for Refunds and Chargebacks
A lot of e-commerce businesses, for one reason or another, tend to fail to account for refunds and chargebacks. This, of course, can distort revenue calculations, which is certainly not a good thing, especially if this mistake is repeated over and over again. So, you have to be careful not to make this mistake yourself.
What you should do is make sure to track all the chargebacks and refunds separately in your particular accounting system. Then, remember to adjust your revenue records accordingly, so that they reflect your income correctly after those refunds. And, apart from that, remember to monitor the chargeback rates, so as to identify any potential customer service issues or frauds.
- Failing to Regularly Reconcile Bank Statements
Your bank statements have to match your accounting records. Not reconciling them regularly, thus, can result in discrepancies going under the radar, and consequently to financial mismanagement. This, of course, is definitely not something you want, which is why you have to do your best to carefully and regularly reconcile those bank statements.
To be more precise, you should do this at least once a month. Or, you could use accounting software that will do it for you automatically. And, of course, if you happen to notice any kinds of discrepancies, do your best to resolve them immediately, and thus avoid any kinds of financial management problems in the future.
- Not Keeping Proper Financial Records
Now, here is something that should be quite logical, but that people still fail to do accurately for one reason or another. In short, you have to keep proper financial records, as that will keep you aware of your financial health at all times, as well as prepare you for the tax season. Not doing this accurately and having incomplete or disorganized records can make it difficult for you to actually assess your financial performance and to do your taxes correctly.
So, make sure to maintain accurate financial statements, including, naturally, cash flow statements, income statements, and balance sheets. As you may have guessed it, you can rely on accounting software to ensure simple and easy organization, as well as access to all the records. And, of course, you should always keep digital backups of all your financial documents, preferably on the cloud, where it won’t be lost.
- Ignoring Sales Tax Requirements
A lot of entrepreneurs ignore sales tax requirements. Not a good idea, though. If you sell in multiple states, or even internationally, you will need to be aware of different sales tax laws, so as to stay in compliance. Otherwise, you will be facing some hefty fines. So, stay updated on all those tax laws and regulations, and make sure to calculate everything correctly.
- Trying to Do It All Alone
Perhaps the biggest mistake that entrepreneurs make here is trying to do everything alone. After all, you have other obligations and responsibilities, and you cannot devote all your attention to proper financial management. This is why you should always work with a great accountant for ecommerce business, and thus let the professionals handle the difficult and time-consuming accounting work. Experts will know the ins and outs of the entire process, thus succeeding in keeping your business financially healthy, while also staying in compliance with all the necessary regulations.
- Choosing the Wrong Accounting Partner
Along the same lines, the idea of getting help from professionals can lead to you rushing into choosing one. I get that you may need help ASAP. But, you should never rush into this, because it could lead to you choosing the wrong accounting partner. The goal is, instead, in you researching different companies, checking their experience, reputation, communication, as well as fees, and then choosing the perfect option for you.
