As the volume of transactions grows for your e-commerce business, the uncomplicated process of online selling can quickly evolve into a complex procedure. Managing numerous transactions while navigating the intricacies of financial recording and reporting demands a high level of accuracy. In this context, avoiding traditional financial missteps becomes paramount.
Keeping the financial base strong can be a deciding factor in the success or failure of the business. By accurately dealing with financial matters, business owners can keep track of their data, benefit from valuable insights and make informed decisions. To achieve this, businesses can use software such as Xero and QuickBooks for efficient daily operations. Here is the full list of apps recommended by transcounts.com
Here are the top 5 common bookkeeping mistakes you must avoid, as they can lead your business straight into financial hardship.
The Importance Of Avoiding Common Bookkeeping Mistakes
While these mistakes might initially appear insignificant to several ecommerce small business owners, their importance becomes magnified as the business experience rapid growth. Over time, what might seem like minor issues can escalate exponentially, potentially reaching a point where evading them becomes time-consuming and very expensive.
Let’s have a look at what these mistakes can cost you both in the short run and long run:
Time: A Precious Resource
If we talk about financials, one mistake will definitely lead to another. A business will get stuck in this spiral, and the longer they avoid taking corrective measures, the greater the mess. Incorrectly recorded transactions, mismatched invoices, and data entry mistakes can accumulate, requiring an insane amount of time to identify and correct them.
Expenses For Error Corrections
The errors we just mentioned are not simple enough to be corrected by regular accountants or bookkeepers. Most times, when businesses are caught up in these, they have no choice but to hire professional accounting firms to reconstruct accurate financial records. The longer these errors persist, the higher the cost of rectification becomes.
Penalties And Reputational Risks
This is a major setback a business has to face if they are unable to present accurate financial records. The most common penalties result from late tax filings, incorrectly declared income or faulty documentation. This may be just a mistake from your end but remember, the penalty is significant.
With all these possible problems that you can be caught up in, don’t ever ignore the following 5 beginners’ mistakes we are about to highlight.
5 Common Bookkeeping Mistakes to Avoid as an E-commerce Seller
1. Neglecting Separate Business Accounts
Many sole entrepreneurs think a separate company account is not required to record business transactions. Most times, to reduce initial complications, they decide to use a personal bank account for their online business.
However, this approach can lead to significant problems down the line. It makes it challenging to keep a record of business affairs transactions separate from personal transactions. It further helps if you plan for securing funding, bringing on board new partners, or want to be transparent with financial dealings. Keeping the business separate from your personal identity is the first step towards efficient management of business finances.
2. Not Investing in Cloud-Based Bookkeeping
Cloud bookkeeping is becoming increasingly popular in the business world, even for small and medium-sized brands. Its popularity is justified as it offers ease of access, security and safety, and ease of use.
Together, it brings flexibility to complete financial tasks wherever you are, just like your online store. Cloud-based accounting, such as Dext & Hubdoc, is no more a thing that can be looked over; it is a necessary innovation in today’s world. Its rising popularity is not merely a trend but a strategic move towards efficiency, security, and adaptability.
3. No Backup of Financial Records
When an entrepreneur shifts to cloud accounting, they automatically reduce the risk of data loss. Since everything is on the cloud, they don’t have to worry about the computer being corrupted or files being misplaced.
However, if the business still follows the traditional bookkeeping approach, keeping a backup of all the data, from sales transactions to inventory restocks, is crucial. Maintaining comprehensive backups of all records is an essential strategy to sustain the integrity of a business’s financial history.
4. Overlooking Sales Tax Compliance
In the initial stages, online business owners often think that tax regulations do not apply to them or they can take care of them independently. This is far from the truth. Sales tax can be tricky as it differs based on factors such as revenue range, location, etc.
Neglecting sales tax submissions can negatively impact an online business across various dimensions. Legally, the repercussions can be harsh, involving fines, penalties, and potential legal action by tax authorities. Financially, non-compliance might lead to unexpected tax liabilities, weakening the business’s financial stability. Thus it is vital that businesses consult an experienced accounting firm to file tax returns accurately and timely.
5. Not Tracking Inventory
For an e-commerce business, getting the inventory levels right is a big deal. Knowing the exact quantities of products, you have on hand without proper tracking becomes challenging. Hence, hindering the data-driver decision-making. With stock tracking, for instance, owners can determine which products are in high demand and require reordering and which are barely moving and should not be bought any time soon.
To avoid overstocking and understocking, inventory tracking from day one is important. Otherwise, it can create a chain reaction of issues impacting your financial health, customer relationships, and overall business success.
In Conclusion
Though these common mistakes seem like something entrepreneurs may already be aware of, it may be too much for a business owner to tackle on their own. Oftentimes, they turn towards traditional bookkeepers and accountants to avoid high expenses, but that doesn’t do much good either. According to experts, inaccurate financial reports can yield negative results in investment research.
But don’t worry; we have a tip for you! Transcounts can be your companion in dealing with the financial aspect of your business. They offer customized accounting services to online businesses, so they don’t have to worry about daily recording, forecasting and even tax filling. Transcounts steps in to alleviate these burdens, allowing entrepreneurs to focus on what they do best – running a successful business.
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