Accounting For Ecommerce Entrepreneurs: 16 Questions You Should Ask

1. Cash Flow or Accrual Accounting?

Flow or Accrual Accounting?

For most ecommerce businesses, accrual accounting provides a clearer picture of finances. It captures sales & expenses when they occur, not when money changes hands.

2. What Financial Software?

Choose software that integrates with your e-commerce platform and automates tasks. Popular options include Xero, QuickBooks Online, and FreshBooks.

3. Track Inventory Accurately?

Real-time inventory tracking is crucial. Integrate your online store with your inventory management system to avoid overselling and losing profits.

4. Categorize Transactions Well?

Clear categorization of income and expenses is essential for accurate financial reports and tax compliance. Use consistent rules and update categories regularly.

5. Manage Payment Processor Fees?

Understand all payment processor fees, including transaction fees, monthly charges, and chargeback fees. Build these into your pricing models.

6. Account for Shipping Costs?

Track shipping costs as separate expenses. Consider offering free shipping above a certain order value to boost sales without eroding margins.

7. Factor in Marketing & Advertising Costs?

Treat marketing and advertising expenses as investments. Track campaign performance and ROI to optimize spending for maximum impact.

8. Monitor Return & Chargeback Rates?

High return and chargeback rates can eat into profits. Analyze reasons for returns and implement policies to minimize them.

9. Budget for Taxes?

Estimate your quarterly tax bill based on projected income and expenses. Set aside funds to avoid scrambling come tax season.

10. Deduct Business Expenses?

Know which business expenses are deductible to minimize your tax burden. Consult a tax professional if unsure.

11. Understand Payment Gateways?

Choose reliable payment gateways with strong security and fraud prevention measures. Ensure they integrate seamlessly with your platform.

12. Stay Up-to-Date on Tax Regulations?

Tax laws evolve. Stay informed about changes that could impact your business, especially regarding e-commerce transactions.

13. Prepare Financial Statements?

Regularly generate profit and loss statements and balance sheets to track your financial health and make informed decisions.

14. Seek Professional Help When Needed?

Don't be afraid to consult a qualified accountant or bookkeeper to handle complex accounting tasks and tax compliance.

15. Review Your Finances Regularly?

Schedule regular reviews of your financial performance. Analyze reports, identify trends, and adjust your strategies based on insights.

16. Use Accounting Insights to Grow?

Don't just track numbers. Leverage your financial data to make informed decisions about pricing, inventory management, marketing, and overall business growth. Remember, strong accounting practices are the foundation of a successful ecommerce business.

Bonus Tip: Automate as much as possible! Integrate tools and software to minimize manual data entry and save time for what matters most: growing your business.