Most Common E-Commerce Accounting Mistake
Handling an e-commerce business can be tricky, especially the books of accounts. Unfortunately, most e-commerce business owners are unaware of these discrepancies, ensuing in inevitable accounting errors.
These errors may result in significant financial & legal repercussions for e-commerce businesses & their owners, which can escalate over time if they are left unattended. Eradicating these types of errors should be prioritized for any corporation to improve productivity, maximize proceeds, prevent fraud, & avoid tax-related penalties.
If you are prone to any of following common e-commerce bookkeeping errors, it is recommended to instantly decide to fix them with the help of an experienced outsourced accountant:
- Using the wrong accounting software: Many traditional business owners use manual accounting methods to manage their books. Not using an accounting software to reorganize & systematize functions is an immense mistake. Running a successful e-commerce business involves leaning on an accounting system that can keep pace. Choosing an accounting software is a critical decision. Employing the right software for your business type, financial expertise, & business life stage is a hugely a primary step. Businesses that just use whatever is free or easy to use to set up or anything trending now can find their day-to-day operations & prospective growth hindered by their hasty choice.
- Not using a Chart of Accounts: Even the best accounting software still involves an informed operator to pull the right levers & push the right buttons. If all your expenses & profits are just consolidated, your software’s reporting abilities will be restricted. However, wise business owners would opt to use a chart of accounts to put down the basis for improved financial recordkeeping & more accurate budgeting. Creating a logical chart of accounts also enhances practical functionality & provides better organization.
- Eliminating receipts for small bills: Most companies to not keep record of smaller bill amounts. However, it is wise to record for incase of an audit & to make sure your books are maintained properly.
- Disorganized Record Keeping: Complicated books are usually the result of multiple people having access to business finances, providing financial authority to less experienced employees, or transferring to a new accounting system. In other occurrences, fraudulent employees may deliberately manipulate the books to disguise deceptive activity. In such cases, it is wise to outsource an accountant from a professional firm.
- Infrequency in bank & credit reconciliation: Bank & credit reconciliations should be achieved regularly. Failing to sustain regularity with reconciliations may allow discrepancies to linger through various reporting periods, impacting cash flow management, forecasting, & even tax calculations. The resulting consequences can range from cash shortages or penalties.
- Recognizing Revenue Incorrectly: Many e-commerce businesses understand revenue incorrectly because they keep records based on when they were paid, instead of when the sale had incurred. However, if an online sale is made at month end, even if the money from the business does not get accumulated into your account until the following month, the revenue from that sale should still be recorded in the month when the sale was made.
- Incorrect Inventory Levels: For e-commerce companies that sell across numerous platforms, staying on top of inventory is always a question. Most e-commerce software providers do not give multi-channel inventory tracing, demanding the incorporation of an inventory software to maintain accurate real-time data.
- Not Tracking Expenses that are Reimbursable: Always track expenditures that are authorized for compensation. Neglecting to keep precise records around these kinds of expenses is more like a waste of money.
- Being Late with Tax Deadlines: Make sure to abide by VAT return deadlines, if applicable, else penalties are inevitable.
- Not Backing Up Data: Data backups are crucial for e-commerce processes. Financial data should be backed up regularly & collected in a secure location to prevent against corrupted files, data loss, or other terrible failure. A data backup can also help reestablish good records if a widescale error occurs during regular operations that would be time-exhausting to reverse.
- Doing It Yourself: Entrepreneurs usually tend to be more prone to handle things themselves. Whether the purpose is cost savings or increased control, doing your own accounting is not feasible indefinitely. As your business grows, more advanced financial needs will require an experienced accountant to manage ongoing demands & plan effectively for strategic growth.
How can we help?
Outsourcing accounting operations is a cost-effective solution for small-to-medium-sized businesses because it provides essential financial services at competitive rates compared to hiring in-house employees.
Additionally, outsourced accounting functions can be completely customized according to the clients needs. The nature of outsourcing guarantees cost-effectiveness by allowing businesses to add services as they are required & utilize specialty accounting services over predetermined time periods. Outsourcing accounting can be done on a part-time or full-time basis, as well as during a limited engagement.
If you require help determining which accounting services to outsource to an accounting company, do reach out to our consultants at once.