Small Business Bookkeeping and Accounting 101 for Ecommerce

Small Business Bookkeeping and Accounting 101 for E-commerce

10 min read

Regardless of whether you decide to outsource this aspect of your business or take a more DIY approach, there are a few things you need to be aware of when it comes to small business bookkeeping and accounting.

From establishing a business bank account to preparing for tax season, knowing the basics around the financial side of your operation can make your life a lot less 蝉迟谤别蝉蝉蹿耻濒鈥揳苍诲 can help you optimize your business, too.

Set Up a Business Bank Account

Setting up a separate business bank account is the very first step toward hassle-free accounting for your small business.

Not only does it make it much easier to keep track of your business-related expenses, but if you鈥檙e a business entity other than a sole proprietor (meaning LLC, corporation, partnership, etc.) you鈥檙e legally required to have a dedicated business bank account.

It鈥檚 a good idea to have two types of accounts:

Checking: For 听like inventory, travel, shipping costs, packaging supplies, etc.
Savings: For stashing away profits and a percentage of your earnings for tax听迟颈尘别.

When choosing a bank for your business, be sure to examine their different fee structures, balance requirements, and, for convenience, proximity to where you live. Some state banks offer , but be sure to read the fine print.

Also keep in mind integration. If you鈥檙e going to be tying your business accounts to an accounting software, know that some smaller, local banks do not have the ability to integrate with these tools.

Before you go to the bank, make sure you have the required documentation with you, such as your:

established business name
tax ID
personal identification.

Tracking Your Expenses

Next, you鈥檒l want to determine how you鈥檒l document your business expenses. This will help you keep a close eye on your margins and 肠辞蝉迟蝉鈥揳苍诲 it makes tax time a whole lot easier, too.

Part of this means keeping your receipts and invoices organized. Be sure to keep receipts incurred from:

Office expenses:听what percentage of your home you use for business, or if you have an external office, receipts related to that expense
Mileage or Vehicle expenses: You can deduct the annual mileage you put on your car for business travel (you鈥檒l get a state-mandated rate), or you can deduct a percentage of your total annual vehicle expenses (like oil changes, gas, etc.)
Travel: Hotels, food, and transportation costs from your business travel
Meals/Entertainment:听Business meetings for lunch, for 别虫补尘辫濒别鈥搄耻蝉迟 be sure to note who you met with on the back.

Documentation is essential for reliable expense-tracking. Whether you鈥檙e using simple folders to keep your receipts together or an online solution like , be sure you always keep your receipts organized. If you ever get audited by the IRS, they鈥檒l want to see your detailed paper trail.

Image source: Expensify

To make this process a little bit simpler, you can take some proactive steps for documentation and storage. Consider the following tips:

Keep a mileage log in your car so you can document miles traveled (and your destination) right away. A simple monthly planner works well for this.
Keep a small accordion folder in your car or travel bag with sections marked for different types of receipts. This reduces the risk of them getting damaged or lost during travel.
Once a month, check your receipt totals against your bank statement to make sure there are no discrepancies.

If you can take these steps toward accurate record-keeping, you鈥檒l make it easier on yourself (or your accountant) when assembling pristine, error-free books.

Bookkeeping

Next, let鈥檚 talk about the bookkeeping.

Bookkeeping is the daily process of recording business expenses and transactions and reconciling them with bank statements. Unlike accounting, which looks at the numbers from a more zoomed out perspective for analysis, this part of the process is all about ensuring correct documentation.

There are a couple of different ways you can approach it:

Work with a who handles it for you.
DIY approach, which means using a spreadsheet or cloud-based solution like .

The right option for you depends on your bandwidth and ability. If you鈥檙e intimidated by this aspect of your business or simply don鈥檛 have time to devote to bookkeeping-related tasks, outsourcing this work to a professional helps ensure you鈥檙e not scrambling when tax time arrives. If you feel comfortable taking the lead on the numbers, here are some basics you鈥檒l want to keep in mind while preparing your books:

Accounts receivable and payable: What customers owe you, as well as what you owe to others
Revenue and expenses:听All transactions, including sales and costs associated with doing business
Inventory:听Detailed breakdown of quantities of stock, dates purchase, dates sold, etc.

It鈥檚 important to keep your books as accurate and up-to-date as possible, as these numbers will help you make more informed business decisions.

Understanding Your Tax Requirements

For many small business owners, the 听of the business can be pretty intimidating. But with the right amount of saving and careful bookkeeping, it can actually be quite simple.

For the self-employed crowd (sole proprietors, LLCs, and partnerships), you鈥檒l claim business income on your personal tax return. Corporations are different in that they function as separate entities, so the filing requirements are a bit different.

If you make more than $1,000 per year, you鈥檒l be required to make estimated quarterly tax payments. To calculate your quarterly payments, it鈥檚 a good idea to refer to last year鈥檚 filings as a guide if your business has stayed the same. If not, you鈥檒l want to estimate your expected income minus deductions for the year. If you鈥檙e in the US, you鈥檒l complete a

Overall, you鈥檒l want to plan on setting aside a chunk of your earnings for tax time.

How much? A safe range is 30-40%, according to the . It鈥檚 better to save more than you need rather than having to scramble to come up with what you owe at tax time.

Monitor Key Numbers

While you鈥檙e completing your bookkeeping work, you鈥檒l want to do some analysis to monitor key numbers and to look for trends and patterns that can help you improve the business. Some key performance indicators to keep an eye on include:

Gross margins:听This percentage will help you monitor your margins and get a firm grasp on how much you鈥檙e actually earning from your products. To calculate gross margin, use the formula: Gross margin (%) = (Revenue — cost of goods sold) / revenue

Monthly sales:听Look for patterns that help you spot slow months and busy months. Use this data to inform your marketing and advertising strategy.

Marketing ROI:听Keep track of the return on investment from your different marketing efforts to find out which channels and platforms are producing the best results. Moving forward, spend more on the channels that are delivering the highest returns and cut out the low-performers.

The good news is that 黑料门 has detailed 听built into the platform, as you can see below:

Just remember: The numbers don鈥檛 lie. Refer back to these key figures when evaluating which products to re-stock, price increases, shipping/packaging expenses, and more.

Small Business Bookkeeping & Accounting: Easier Than You Think

With the right financial information and a stellar product, you can grow a thriving small business in no time at all. If you鈥檙e doing the record-keeping yourself or are outsourcing it to an expert, keep a pulse on the key numbers and reports that will help you understand how your operation is performing.

Want more content on the financial side of your small business? Check out:

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About the author

Aniqa, CFO at 黑料门, has helped companies achieve desired financial and business goals with a focus on compliance and operational excellence. Outside of work she loves interior designing and traveling around the world.