Three accounting basics you need to know to run a successful online store

When most people start their own online store, they’re more excited about the products they are selling than boring things like accounts.

However, accounting is a painful necessity, and one that will only become harder if you ignore it. Even if you hire an accountant to help you submit your tax returns, it’s good to familiarise yourself with the day to day finances of your company.  

Below are three accounting basics that every e-commerce store owner needs to be aware of.

1. Accounting software will make your life easier

It’s far easier to do your accounts in 2020 than it was in 2000 purely because of the ease of use of cloud accounting software.  There are a number of free tax software and cloud accounting platforms to choose from, each with different features and price plans.  The majority also offer a free 30-day trial so you can test them out and opt for the one that you like the best.  

At the very least, you’ll want to use a software that enables you to track expenses, sales, and your inventory.  Some also sync up with e-commerce platforms like Shopify. PieSync's article might help you decide if you’re struggling. They compare Wave and Quickbooks, so you can figure out which system is the best for you.

2. Get a separate bank account

If you use a personal bank account for your business’ finances, you’re going to end up in a world of hurt once it comes time to do your tax returns.  Rather than pay an accountant heaps of cash to sort out the mess, get a separate bank account for your business from the start.  

Not only will a separate bank account help you avoid trouble when compiling a tax return, but it will also enable you to accurately manage your cash flow.  You will be more able to accurately track your income and expenditures and make adjustments in your business where necessary.

3. Understand how to track inventory

Inventory refers to the product(s) that you sell, or, in some cases, the materials that you use to build the product that you sell.  The latter refers more to craft stores and homemade items. You also want to include any materials you use for shipping here. 

Once you know what your inventory is, you need to determine the minimum amount of stock to have on hand before you place an order for more.  You can then track your inventory and ensure you order more before you reach the minimum level you’ve determined.  

The reason tracking inventory is important for accounting – and not just from a business point of view - is because inventory costs money and the price of your stock can also change due to demand and other factors. Shrinkage (loss) can also occur due to damage and theft, so it’s important to count your inventory physically from time to time.

Running an online store can definitely be exciting, and it can offer you a way to break away from the grind of the corporate world.  However, if you want your store to be truly successful you need to keep accounts at the forefront of your mind.