E-commerce accounting: How to set financial goals for 2023
Laura Tien
November 17, 2023
As the end of the year rolls around, it’s time for e-commerce business owners to start planning their financial goals for 2023. Whether you’re working with an accounting professional or you’re figuring it out on your own, it’s important to create realistic goals that you can measure your performance against in the coming year.
In this article, we’ll go through how to use this year’s data as a foundation for next year, how to start streamlining the flow of data in your e-commerce business and finally different goals you might consider setting. We’ll draw from your different financial reports and highlight the importance of reviewing your technology (tech) stack.
Review your financial goals from 2022
If you’ve been running your e-commerce business in 2022, one of the easiest ways to determine your financial goals for 2023 is to review your performance from the past year. As a general rule of thumb, if you were above or below your set goals by 5%, you estimated well. However, if you were further off, you’ll want to keep this in consideration for next year.
Even if you didn’t set hard and fast goals for 2021, you can still use your performance as a general guide. It can be useful to use a growth rate percentage as your starting point. For example, let’s say you want to grow by 20% in 2022, you can multiply your results by 1.20 to get a general idea of what you can aim for.
Goals from the balance sheet and income statement
A few metrics from the balance sheet that are useful for e-commerce businesses include the current ratio and quick ratio. These both give you an understanding of your solvency or your ability to pay off debts. You can aim to improve these ratios based on your performance from 2022 or based on industry benchmarks.
Inventory turnover is another crucial metric from the balance sheet that you should aim to improve. Though there’s no real rule of thumb for what’s ideal, it’s a ratio that you should be tracking regularly and aiming to decrease. For example, if you’ve turned over your inventory 1.65 times this quarter and you know next quarter will be a busy one, you might aim for 1.4.
Your e-commerce business’s income statement will highlight your financial health over a period of time. Some of the easiest goals to set include your gross profit and gross profit margin. At a bare minimum, you want these to be positive and increasing over time. In general, a successful business would grow by about 15% to 25% annually.
Once you’ve set your goals for gross profit, you can then use these to figure out a range of other key performance indicators (KPIs) for your e-commerce business. You can determine how much revenue you’ll need to bring in, and how many more conversions you’ll need to make based on your average order value. Similarly, you could aim to increase your average order value.
Maintaining positive cash flow
The phrase, “Cash is king,” isn’t popular for no reason. Keeping an eye on your cash flow and cash flow statement is essential to e-commerce because there are typically a tonne of moving pieces. Having an idea of how your cash will move over the next year ensures you can meet obligations, and allows you to plan for opportunities and challenges.
Unlike goals from the balance sheet and income statement that tend to be more specific, cash flow goals can be more high-level and more focused on a plan/forecast. For example, some high-level cash flow goals could include having cash set aside for emergencies, avoiding high levels of debt, increasing revenue and reducing costs.
In terms of cash flow forecasting for e-commerce businesses, you can work on one manually or by using a dedicated tool. The idea is to predict the cash flowing in and out based on your history and speculated fluctuations. To be even more thorough, you’ll want to consider best case, moderate and worst case scenarios.
Keep your data accurate and timely
Having clear and achievable KPIs that allow you to measure your success is just one part of the picture. In order to accurately evaluate your data, the data itself needs to be reliable and timely. As an added bonus, having up-to-date data allows you to get your taxes done faster as well. No more tax time rush!
Now, how do you keep your e-commerce accounting data accurate and timely? By using an accounting integration, you can connect your e-commerce platform to your accounting software and automate the data entry process. For example, you can connect Shopify to Xero, QuickBooks or MYOB.
Amaka’s accounting integrations are available on a completely free plan with no restrictions based on the amount of orders made. Sales and payments data is automatically added to relevant accounts and matched to transactions from your bank feed. With a daily sync, you can rest assured that your data is always up-to-date.
How to track of e-commerce insights in real-time
FitBiz by Amaka is a business activity tracker that connects to your e-commerce platform. It creates AI-tailored goals for the key drivers in your business, whether it be revenue, average order value or any other important metric. Plus, you get a unique heatmap, deep insights and industry benchmarks so that you can keep your finger on your business’s pulse.
Review and consolidate your technology stack
We’ve spoken about a few technologies that you can add to your e-commerce business but it’s also worthwhile to take the time to review and consolidate your technology stack. Take a look at all the apps and subscriptions you have, especially the ones that impact how data flows in your store. It can be helpful to graph it out with something like Lucidchart.
Questions to ask yourself about each system in your technology stack:
- Are you making the most of features available? Can you use any more or should you consider getting rid of any systems you don’t take full advantage of?
- Has your return on investment been positive?
- Do the time savings outweigh the expense?
- Have you been actively maintaining the system, i.e. Keeping data updated, reviewing notifications, etc.? Is the maintenance worthwhile?
- Does the data flow seamlessly to and from other apps?
- Are there any better solutions available?
Apps and subscriptions definitely have their place in a successful e-commerce business. However, going through and culling the ones you don’t need can help to take a weight off, literally and figuratively. If you wanted to, there’s now more room to add different solutions that could be more useful.
Key takeaways on e-commerce financial goals
If profit is important to your e-commerce business, having a clear set of financial goals is absolutely essential. High-level goals, cash flow, inventory and tech are all crucial to the success of an e-commerce business. Once you figure out exactly what you’re aiming for, you can then do regular check-ins to see if you’re on track. Good luck in 2023!