The world has made a dramatic shift to ‘online’ with work from home orders and lockdowns having turbocharged this change. Now more than ever, it is simple to kick-off your online store or side hustle!
Coming up with the idea is the easiest part once you know what you want to do. The next step would be having a website so people can find you, a ‘store’ so to speak so people can view your products and pay for your goods.
Maybe it’s not that simple after all!
That’s the fun bit.
Now if your online store is successful, you still need to do your due diligence on online accounting. You need to record and report your trading activity in compliance to the BAS and Income Tax requirements. It’s best to get this bit right up front and it should be considered as a part of your overall tech stack for your online business. Yes, we know that accounting and bookkeeping for online sellers is boring stuff, but it is important that you have it to prevent future headaches for your business.
So here are our 5 top tips that will help you when thinking about setting up your own online or e-commerce business.
1. Synergies of Integration
It’s not just about making your life easy but it certainly will! Do your research, find software that can integrate and test it to make sure that the process aligns with the goals you have in mind. An example of integration might be Shopify front end, Xero back end with a Paypal payment gateway. Set up the building blocks for growth from day 1!
It might cost a little bit more, but it can save you time and money on bookkeeping fees in the long run.
Clever integration that provides detail in your day-to-day transactions and will be the foundation of your internal reporting and external compliance reporting. You need a set-up that will help record your expenses, track your tax, and understand whether you’re operating at a profit or a loss.
The process of integration is usually very simple and can often be done without the need for any external help, though we would recommend you engage a bookkeeper with ecommerce experience to help you have peace of mind!
There are a lot of systems out there to choose from and they will all work differently. Your bookkeeper with an online business experience will be able to assist you in selecting the right accounting software such as Xero, Quickbooks Online, or MYOB.
Costs for each of these platforms can vary, so be sure to check what is included and what is a paid add-on. Do your homework and invest wisely
2. Show Me the Money!
So, you now have a store and an accounting system in place. What you need next is a channel for your sales and payment.
Picking a payment gateway is a big decision as there is an ever increasing list to choose from. Notably, there are options that cost you, the seller and ones that cost the purchaser.
Do you stick with low-cost options to you and the seller such as Paypal? Or do you offer flexible payment options through Zip Pay and Easypay? It probably depends on the value or cost of the product you are selling.
The best advice in today’s online space is to offer multiple options and let the consumer choose. The path of least resistance to payment is often the best!
However, ensure that your payment gateway integrates – per our first tip!
It needs to integrate back to your eCommerce site and also your accounting system. Without this automated integration you will be struggling to pull your accounts together!
To manage your bookkeeping for online stores, you need to know at all times how much you have sold and also how much profit you have made. Often the government is also very interested in this too! Make your BAS Preparation and Income Tax preparation as simple and seamless as possible.
You can always check out your competition if you’re not sure and see what they are offering.
3. To GST or Not To GST
One of the most common issues we see in our review of online business accounting setups is that tax settings in respect to GST are often incorrect.
The ATO are focusing more and more on ‘side hustles’ and in particular online stores to ensure that people are declaring the income and paying their fair share of GST (if applicable). Platforms like Ebay and Amazon make the process easier, but without the requisite BAS or GST knowledge you may inadvertently click or not click the right box.
We highly recommend that online sellers like you employ professional bookkeeping services for your ecommerce business. Doing so will ensure you are doing the needful correctly.
Know your obligations with regards to GST and sales online as it can be costly to ignore.
4. Maintain and Understand Your Stock Levels
Running an online store is no different in some respects to a real store.
You might market your business and sell online but you still need to hold and supply the product you are selling to the customer. Tracking and understanding how much stock you need to hold, when you need to distribute it and the cost of that stock is a crucial skill.
You need to know the cost of the stock you need to buy and hold. You also need to consider your lead times in sourcing stock and meeting any increased demand for your product. In 2021, we are seeing considerable delays in overseas and domestic freight.
Accurate accounting and system integration are your friends here. You want to make sure that your systems update your stock every time you sell an item so that you can accurately monitor how much stock you have available. This can minimise the amount of cash you need to invest in your stock (working capital) and allow you to invest in more productive activities like marketing!
5. Profit
A simple heading but with a critical output. Nearly all people are in business to make money. If your tech stack for online businesses only serves the front-end sell, you will have no transparency into how much profit you are making! Finding and integrating systems that will also assist in updating (ideally in real time) your revenue, costs, stock requirements and sales are equally as important.
You will want to monitor how much you are making from a sale, right? So you need to look for a system that will calculate and post a ‘cost of goods sold’ amount. A lot of systems will only post the sales from your online store to the accounting and bookkeeping system. By having a system that posts both the sales total and an amount for the actual cost of the item sold, then you can track your gross profit and performance daily.
Secondly, Mr Tax Man will still be there every quarter and every end of year asking the same questions of you. Correctly setting up a system for your accounting online will help ensure accuracy of your financial data and allow you to meet your BAS and Income Tax compliance requirements.