6 Common eCommerce Accounting Mistakes

While accounting is more or less similar in different industries, there are special nuances for eCommerce accounting that are unfortunately ignored by the business owner. This results in errors that could have been avoidable. These errors have serious consequences for your business and if left unchecked will continue to grow until it becomes monstrous.

Choosing the wrong accounting software

One of the major mistakes in eCommerce accounting is using the wrong accounting software. The business of eCommerce operates primarily on the internet, everything major takes place there. Given its nature, choosing the accounting system will greatly impact your business.  

On the other hand, completely choosing not to use software for a business that operates online does not make sense at all. If you do your accounting manually, it will only create additional and redundant work. Why add more work without value, when you can install a program that will easily retrieve documents from the web?

Choose the right software from the beginning so you won’t have to face the hassle of migrating to a new platform.

Mishandling Sales Tax

Probably the most burdensome mistake is mishandling your sales tax. If you don’t do your research properly and you don’t work with the right tax expert, you will be facing surcharges or a tax audit.  A sales tax must be calculated at the state and local levels to calculate the right charge to your customer. When you have collected the right sales tax, you can record it as a liability, then report and remit to the state in a strict payment schedule. 

When you choose the correct accounting software it will also help you remain compliant.

Keeping messy books

A disorganized set of books can kill your business before it has a chance to grow. 

One way to mess up your books is by failing to implement a Chart of Accounts. When your Chart of Accounts serves your business well, you will have a better time organizing your books; you will know where everything is in your finances. If everything is lumped together, your other accounting tools, your reports, and even your financial analysis will not be optimized. 

Once you have established fairly accurate books, the next thing to ensure is to keep a copy of your proper transaction documents. You might regret throwing out receipts, even if they are for small amounts. Nowadays, you won’t even need to worry about losing receipts in the clutter. There is plenty of cloud-based software that lets you attach documents to your recorded transaction. You will be able to pull them up whenever you need them in case of a tax audit.

In eCommerce, you need to do regular backups for your data. While most are already available in the cloud, creating backups is good in case you need to correct a widespread error that is too tedious to correct manually.

Failing to track cash flow

In the business of eCommerce, cash is the primary driving force for growth. This means, for your business to succeed you must have a steady flow of cash flow. You need sufficient inflow to fund you while you wait through the long cash flow cycle of eCommerce. 

A common mistake of business owners is ignoring their cash flow and become obsessed with their revenue numbers. Sales do not translate to cash earned. You could have sold all your products and gained a lot of revenue but if you have to wait till the product arrives at your customer before you are paid, you will have no money to replenish your inventory in the meanwhile. Then, what do you do?

In eCommerce, the next biggest item is your Inventory. If you don’t keep track of your goods, you end up unable to meet customer demand or get stuck with unsold surplus inventory. 

Another inventory issue involves the ones that are still in transit, prone to get lost. While your inventory is in transit, you have already paid for its deposit. This transaction shows up in your Balance Sheet and not a P/L item. It only gets valued when it arrives. It’s a common mistake to only focus on the inventory in your P/L, it’s equally important to keep track of your inventory in transit.

Infrequent bank and credit reconciliation 

This mistake is the same with recording books. Bank and credit transactions should be reconciled regularly. Leaving them unchecked will cause discrepancies to persist until they are no longer manageable. Not only will they affect your financial analysis and forecasts, but you could get a tax audit. 

Making a DIY project

Being blinded by the easy concept of eCommerce, as it is portrayed to be, most business owners will attempt to DIY their accounting. The motivation could be for saving costs or for the sake of retaining control. Either way, it is one of the most common mistakes in eCommerce. Growth will always complicate things and starting a business with messy financials will cause more expenses to hire someone to sort out your mess. 

But, as you read this, if you are already in that mess, don’t worry, we have your back. Come talk to us and we’ll figure out a way to solve it.  

Call Us Now!