Whether you’re managing the books for your own e-commerce business or an e-commerce client, there are a few accounting mistakes you should try to avoid. Especially with the e-commerce industry booming, it’s easy to get caught up in a million and one different tasks, ultimately forgetting about keeping your books updated.
Unfortunately, accounting is one of those areas you just can’t ignore. On the bright side, by being aware of some common mistakes, you can save yourself from ending up in a pile of work down the line. In today’s article, we’ll go through how you can avoid some of the most common accounting mistakes we see in e-commerce businesses.
Doing your e-commerce accounting manually
In 2021, doing your accounting manually is unnecessarily complicated and tedious. The room for human error is significantly higher, meaning your financial reports might not be giving an accurate representation of your business’s position. There are a number of ways to digitise and automate the accounting processes in your e-commerce business.
At the core of these is setting up a suitable, cloud-based accounting software. Switching to the cloud means you can access your data from anywhere and easily give access to others. From there, you can set up bank feeds to automatically import transactions from your bank. Plus, you can store all your receipts and other documentation digitally.
Not syncing transactions to your accounting software
After you’ve set up your accounting software, you can connect it to your e-commerce platform through an integration. This way, you don’t have to do manual data entry or bank reconciliation. For example, you can connect Shopify to MYOB, Xero or QuickBooks Online for free and automate your accounting processes.
Using our accounting integrations will allow you to schedule an automated, daily sync that summarises your sales and payments data into one invoice. This means bank reconciliation becomes lightning-fast rather than taking a few hours every week. Transactions are mapped into the correct category and can be categorised as well, meaning better financial insights.
You can have peace of mind that your books are accurate, up-to-date and perfectly reconciled. If you haven’t been keeping up with your books, you can actually back sync your data with our historical export feature to get yourself back on track.
Mismatching account types
Part of setting up your accounting software will be ensuring sales and payment data are mapped into the correct category in your e-commerce business’s chart of accounts. The standard categories are assets, liabilities, equity, revenue and expenses, each made up of relevant sub-categories such as advertising, storage fees or sales.
There are a few, key sales and payment types that we see e-commerce businesses commonly mapping into the wrong account. For example, exchange credit and gift cards should be categorised as a current liability and not as revenue.
If you’re using an accounting integration, it’s crucial that account types are matched properly from the beginning. Our integrations allow you to select preset mapping that work for most e-commerce businesses or customised mapping if you have unique needs. You can reach out to our integrations support team or connect with an accounting professional if you’re unsure.
Not meeting international e-commerce tax standards
On a similar note, tax types can be incredibly confusing, especially with most e-commerce businesses dealing with multiple regions, all with their own ways of dealing with taxes. For the most part, you can rely on your e-commerce platform, accounting software and other integrated apps you use to manage all the different types of tax properly.
However, you’ll still want to make sure you’re meeting all the tax standards for your region. Make sure you’re handling confusing tax types such as value-added tax (VAT), tariffs and shipping duties correctly. Check what activities you need to lodge and keep all your documentation organised.
Inaccurate e-commerce inventory levels
Next, one of the areas that pains e-commerce businesses the most is inventory management. The more your business grows, the seemingly more difficult it becomes to keep inventory levels accurate. It’s important to tackle this area early on. There are a number of inventory management apps and tools that can help you with streamlining.
Another important note is how your inventory management software integrates with your accounting software. For example, if you’re sourcing products from an external manufacturer or supplier, you would want data to update automatically in your accounting software when you initially make a purchase order as well as when your inventory arrives.
Your inventory valuation is important in determining your balance sheet, profit and loss statement, and cash flow forecasting. If there’s a mistake early on, it will likely carry on and ultimately impact your own, or your accountant’s, ability to develop business insights. Accurate inventory levels give you a better understanding of your financial position.
Delaying your accounting until tax time
Last but not least, we regularly see business owners in all industries ignoring the upkeep of their books until it’s too late. Even though it’s not specific to e-commerce, it’s so common that we had to mention it. By spending even half an hour on accounting processes every month, you’ll save yourself a massive headache at the end of the financial year.
Regularly keeping your books in check is particularly important for business owners, regardless of whether you’re doing your accounting on your own, or you’re working with an accounting professional. It’s useful to block out a chunk of time on a regular basis to review your accounting.
For example, you might create a monthly checklist of accounting to dos. This might include uploading your receipts and documentation to your accounting software, checking your inventory levels, and reconciling bank statements. Bank reconciliation could take just a few minutes if you’re using one of our accounting integrations.
Key takeaways on e-commerce accounting mistakes
By laying down the groundwork and setting up a few easy processes, you can significantly reduce your chances of making an e-commerce accounting mistake. In particular, you want to focus on minimising human error, ensure data is recorded accurately, stay on top of ongoing tasks, and make the most of the tools available!