E-commerce accounting software is one of the best investments you can add to your online store. Here we gathered the top 10 reasons for you to show why it’s important and features to consider before having one.
One of the most important components of business management is accounting, which is the practice of keeping detailed records and filing associated documentation about a company’s financial transactions.
Accounting practices can vary significantly depending on the type of business, its structure, and whether or not it is publicly traded. This article will describe some ways accounting can be applied to e-commerce businesses and provide guidance for how to choose appropriate software.
For those who have just started their own online business, it may seem like a lot of work to keep track of all the expenses and make sure things are being done in the best way possible with regards to finance. But at this point in time, accounting can be done easily by using integrated software and plugins, which can handle most of the job by automating accounting tasks.
Here is a top 10 list of what benefits an e-commerce accounting software can provide for your online business.
1. Easily Track Inventory and Orders
Tracking inventory is an important component of any business, and can be especially challenging for small businesses who have more complex supply chains. Tracking inventory and orders are key to running a profitable business and reducing waste.
When choosing an accounting software, important thing is that it
- should have inventory module
- Reduce stock accordingly when an item sells
You should also be able to access inventory information through a web portal or app which will make it easier for you to keep track of your inventory at all times.
These programs will allow you to receive notifications on low stock and provide useful information such as total value of inventory, or projected runout dates.
2. Know What Products are Selling & What Products Aren’t Selling
Successful businesses are able to tell what products are selling and what products aren’t selling. Knowing which products to stock will help save costs on stocking items that will never sell.
To determine which items stay on the shelves, key metrics to watch is
Average number of days in inventory
Projected runout dates
Ensure that your inventory module provides this information for each product, so you can plan your inventory effectively.
3. Setting Prices and Cutting Costs to Maximize Profit Margin
The goal of a business is to make a profit. To do that, you need to be able to charge more than the cost for producing and distributing your products. The key is figuring out how much more you can charge without losing your customers.
There are many factors that go into determining the best price point for any given product or service. The most important consideration is the customer’s perception of value. If customers feel that they are getting added value from what you offer, they may be willing to pay more than what it actually costs for them to buy it from you.
You can try different price levels for different timeframes and find out how you can maximize revenue by comparing the data.
On the other hand, reducing costs is equally important to maximize online store profit margins. To find out unnecessary costs, make sure that your accounting software is equipped with tools to record every penny you spent and report a summary of spendings in a well organized fashion.
4. Effectively Manage Your Money for a Healthy Cash Flow
Managing your finances is as important as managing your time. Managing your finances effectively can help you grow your business more than you ever imagined.
If you are losing money or on break even, it means no room for growth further. When your online business is profitable, you can spare more resources for marketing and advertising. Eventually, it can turn into more sales.
Considering all the process through the growth, an accounting software is at the heart of it, for successful cash flow management.
5. Understand Taxes to Avoid Fines and Penalties
It is important to understand the slip-ups that can lead to fines and penalties, and how to avoid them.
Governments take a strong stance on those who do not file taxes. The government may impose fines for failures to file or pay in a timely manner, as well as penalties for the underpayment of taxes. Taxpayers should be aware of their responsibilities throughout the year and plan accordingly.
Therefore, your accounting software should provide you information on your tax payable (sales tax), tax receivable and your tax balance.
Your accounting software should also be able to import tax data from your e-commerce platform automatically to save your valuable time.
6. Feed Your Accountant
In order to work with an accountant, you should feed them with your business data. Without accounting software, it’s a tedious process to make a list of financial data every month.
That leaves you with the hassle of making a list of your sales, tax, spendings …etc. separately, every month. We can hear you saying “you’d like to focus on growing online sales instead”.
In this case, you should make sure that your accounting software can export all financial data on-demand. You can just share exported data with your accountant and that’s it!
7. See All of Your Financials in One Place
As an online store owner, dealing with different financial software can be time consuming. Instead you would like to have a single accounting solution which is integrated with your e-commerce platform and provide all the tools for a successful financial management.
When you are using a different software for each need, there is a chance to be dealing with data import/export, connection issues. To eliminate such risk, using an accounting software covering most areas of financial management, is the best investment you can add to your online store.
8. Use Account Codes to Keep It All Straight
Account codes are a great way to keep all your finances straight. Without this system, you would be left guessing which invoices are from which customer, what the price of an item should be, and how much money you spent on that important business lunch.
An accounting software can automate this process for your online store. It can enumerate all your sales, spendings, stock…etc. Later you can filter out a group by it’s account code easily.
9. Monitor business performance metrics such as total sales, customer profitability, cash flow, and more
Monitoring business performance metrics are important for any business to measure its success. A lot of the metrics that businesses monitor are often found in accounting software. Some examples of these are total sales, customer profitability, and cash flow.
To find out how your online store is doing financially, an accounting software is a must have for your business.
10. Planning and Forecasting
How your online store was performing financially in the past is quite important to forecast the future of your business. In order to know how it’s been performing in the past, accounting software is the best source. Using accounting software, you can also compare changes over time and see how changes you made affected the store’s financials over time.
You should make sure your online store accounting system is providing you a clear picture of changes and has a comprehensive reporting system.
E-commerce accounting software solutions
To summarize, accounting software is one of the best investments you can add to your e-commerce business. To find out available accounting solutions for e-commerce, you can check our accounting plugins or accounting integrations posts.