The vast majority of eCommerce businesses fail within the first three months. Many factors can contribute to the failure of a small business, but some of the most common include a lack of preparation, unrealistic expectations, and insufficient marketing.
The first and most essential step is setting up your business finances correctly from day one. This may seem unnerving, but handling your books—in the long run—will be a breeze if you remember these quick tips. Read on to learn how to get your ecommerce business off to a strong financial start!
Wrong Moves Beginner Ecommerce Business Owners Make
Starting an ecommerce business is an exciting proposition, but it’s important to avoid these two biggest financial mistakes that can trip you up in the early days.
Managing the Books All by Yourself
Like many beginner business owners, you wear a lot of hats. You might be the sales team, the marketing department, the customer service representative, and the CEO all rolled into one. And while you might excel at these jobs, there’s probably at least one area where you could use some help. For many business owners, that area is accounting.
Dealing with bookkeeping, invoicing, and tax prep can be time-consuming and frustrating, especially if it’s not your area of expertise. That’s why it makes sense to outsource these accounting tasks to a professional.
Working with an accountant can free up your time to focus on the parts of your business that you’re good at, which will help you make more money in the long run.
No Budget in Place
Another thing business owners forget is to set a budget. Without setting a line for expenditures like equipment or business-related travel deductions, you won’t be able to:
- Monitor your cash flow
- Stay on top of expenses (both recurring and unplanned)
- Make well-informed decisions about when to spend and when to save
Having a budget in place will also allow you to set aside money for taxes and other unexpected costs and keep you focused on your long-term financial goals. In short, a budget is a powerful tool that can help any online business thrive.
Tricks of the Trade to Build a Strong Foundation for Your Finances
Do you remember the old saying, “a stitch in time saves nine?”
When financing your business, a little planning can save you a lot of trouble and cash down the road. So before spending on more inventory or expanding when you’ve just started, make sure you have a solid foundation. Here are a few tricks of the trade to help get you started:
Using the Cloud
What has been the history of financial recording and reporting?
- On paper
- Microsoft Excel
- Desktop accounting software
- Cloud-based accounting software
Doesn’t it make sense to put your accounting and bookkeeping online instead of having an old-fashioned paper trail? It means you can access your accounting information from anywhere, anytime. This is especially convenient if you have staff in different locations.
It’s also less risky for storage because you are not relying on one device to store your entire accounting system. As a result, you won’t lose all your accounting data if something happens to that device. Plus, your data is encrypted, just like your bank account is, so it requires a password to access your account, adding a layer of security.
From invoices and expenses to bills and receipts, it can be easy to feel like you’re constantly playing catch-up. Thus, automating your payments can free up your time and energy for more important tasks.
Instead of renegotiating with angry vendors that you forgot to pay, you’ll get better relations and even early payment discounts. Accounting software and tools can streamline your business, reduce stress, and improve your budgeting costs.
Save for Tax Days
If you’re in the process of starting a business, you know that there are a lot of up-front costs. Putting out a lot of cash before you even start making sales is easy. But this can cause more debts to pile up, and as any entrepreneur knows, one of the biggest risks in business is taking on too much debt. That’s why it’s so important that taxpayers should be sure to create a sales tax plan.
Here are taxes ecommerce businesses might need to pay:
- Sales tax nexus. Nexus is a connection you have to a state requiring you to collect and remit sales tax. There are a few different types of nexus, but the most common is physical nexus. This is when you have a physical presence in a state, like an office, warehouse, or store.
- Income tax. The amount of income tax you owe will depend on several factors, including your business type, your profit margins, and the state where you do business. Most online businesses must file a quarterly tax return, including information on their quarterly income and expenses.
- Payroll tax. These are taxes imposed on your staff based on their salaries.
- Property tax. Do you have warehouses or offices under your business? Then, local entities might get this tax type levied on property owners within their jurisdictions.
Get an Ecommerce Accountant
Running an online business comes with unique challenges, from managing inventory to dealing with shipping logistics. And when it comes to business bookkeeping, ecommerce businesses have their own specific needs that an ecommerce accountant can best manage.
Here’s how an ecommerce accountant can set your finances right:
- They can offer the latest financial tools to track your income and expenses faster and more effectively.
- Whether you’re a Shopify or an FBA Amazon seller, an accountant specializing in ecommerce will be familiar with different taxes, regulations, and features of different ecommerce platforms.
- Ecommerce accountants are not just aware of the tax implications in your country, but also taxes levied across the globe so you can stay tax compliant no matter where you and your customers are.
From setting up your eCommerce accounting system to filing your taxes, they’ll have you covered. And because they understand the unique challenges of eCommerce, they can provide tailored advice and solutions to help you grow your business.
If you’re planning on building an eCommerce empire, one of the most important things you need to do is set up your business finances correctly from day one. A solid financial foundation will help ensure your business can scale and grow without major hiccups.
Now that you know the basics, it’s time to put this information into practice and start building your eCommerce empire.
Remember, making mistakes is part of the learning process—but if you can avoid some of the most common ones, you’ll be in good shape from day one. Be sure to explore our other articles for more tips on how to set up your business finances right from the start.