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8 Common Ecommerce Accounting Mistakes & How to Avoid Them

QuickBooks expert and BlackRock Business owner Peter Eastvold warns ecommerce businesses to avoid these costly errors.

Running an ecommerce business is hard enough without making costly accounting mistakes. But unfortunately, many ecommerce businesses do just that. In this blog post, we will discuss 8 of the most common accounting mistakes ecommerce businesses make and how to avoid them. By following these tips, you can keep your business finances on track and avoid any significant headaches down the road!

Shipping

1. Not Keeping Track of Inventory

Inventory management is a crucial part of accounting. When inventory levels are too high, it ties up capital that could be used elsewhere. On the other hand, if inventory levels are too low, it can lead to stock-outs and lost sales. Accurate inventory management is essential in any case for keeping your business on track.

One of the biggest challenges in inventory management is tracking inventory levels. This can be difficult to do manually, particularly for businesses with large and complex inventories. As a result, many businesses use inventory management software to keep track of what’s in stock and where it’s located. However, even with the help of technology, it can be challenging to keep track of constantly changing inventory levels. This can lead to inaccuracies in your accounting records and make it difficult to decide where to allocate your resources.

Ultimately, failing to track your inventory accurately can have severe implications for your business. Inaccurate accounting records can lead to poor decision-making, and stock-outs can damage your reputation and customer relationships. By taking the time to track your inventory accurately and keeping a cohesive singular system across sales channels, you can avoid these problems and keep your business on track.

Bookkeeping

2. Not Recording Expenses and Costs Accurately

One of the most important aspects of accounting is maintaining accurate records of expenses. Expenses directly affect the bottom line of a business — they represent money that has been spent and, therefore, cannot be recouped. If expenses are not recorded accurately, it can lead to several problems. 

  1. First, it will be difficult to produce accurate financial statements. This can make it nearly impossible to make informed decisions about where to cut costs or how to allocate resources. 
  2. Second, inaccurate expense records can lead to errors in tax filings, which can result in fines or penalties from the IRS. 
  3. Finally, inaccurate expense records can give creditors and investors the wrong impression about the financial health of a company. 

Inaccurate expense records can, clearly, have serious implications for a business, so it is important to be meticulous when recording and tracking expenses. Our recommendation? Create a standard procedure for each key employee to follow, whether they are making company purchases, inventory purchases, or paying overhead expenses.

Marketing metrics

3. Not Setting Up Proper Reporting Schedules for Sales

Few things are more important to the success of a business than accurate accounting. Yet many businesses fail to set up proper reporting schedules for their sales, resulting in problems with their accounts. When sales are not properly reported, it can be difficult to track income and expenses — leading to errors in financial statements and tax returns. 

In addition, businesses may find it difficult to obtain financing if they are not able to provide accurate information about their sales. As a result, businesses should take care to set up proper reporting schedules for their sales in order to avoid these problems. Again, the solution is procedure, procedure, procedure! If you are a loose-cannon business owner, or the idea guy, then you better hire someone who is the opposite of you, a task-oriented manager or partner. Someone needs to grind out the procedures and then keep people adhering to them.

4. Failing to Create a Budget and Stick to It

If you don’t create a budget and stick to it, your accounting will suffer. You’ll end up spending more than you have, which will put you in the red. You may also miss important deadlines, which could lead to fees or penalties. Worse yet? You could end up accidentally overspending on something and not have the money to cover it, which can lead to major financial problems down the road. A budget is essential for keeping your finances in order and ensuring that you don’t overspend. Without one, your accounting will suffer and you could end up in a world of trouble. The way to fix not creating a budget is easy: Create a budget! Ha ha ha… Just make sure you do it before it’s too late.

5. Forgetting to Plan for Taxes

Failing to account for taxes can have a major impact on your accounting. When you don’t account for taxes, your financial statements are inaccurate. This, in turn, can lead to problems when you file your taxes. The IRS may question your deductions, or you may end up owing more taxes than you expected. 

Additionally, failing to plan for taxes can also make it difficult to get a loan or obtain financing. Lenders will often request tax returns in order to verify your income and assess your ability to repay the loan. If your tax returns are inaccurate, it could jeopardize your chances of getting the loan. 

Finally, don’t forget to actually put aside the money for taxes. Treat this money as untouchable, and perhaps even do something drastic to ensure you cannot easily reach it.

6. Not Tracking Payments and Refunds

One of the most important aspects of accounting is tracking payments and refunds. This helps you to maintain accurate records of what came in and what went out. If you do not track this information, it can quickly become confusing and difficult to manage your finances. Additionally, not tracking payments and refunds can once again lead to problems with your taxes. The IRS may come after you for unpaid taxes if they discover that you have not been accurately tracking your income and expenses. 

The bottom line: It’s essential to be diligent in tracking all payments and refunds. By doing so, you will help to ensure that your accounting is accurate and up-to-date. Automation is obviously a game changer in this arena. Why do all the crazy tedious, time-consuming busywork when technology can do it for you? Invest in software that gives you back your most priceless commodity: time.

7. Misunderstanding the Difference Between Revenue and Profit

Most business owners have a general understanding of accounting — it’s the process of tracking and managing finances. However, many small business owners don’t have a clear grasp on the difference between revenue and profit. This can lead to some serious misunderstanding when it comes to making financial decisions. Revenue is the total amount of money that comes in from sales, while profit is the amount of money that is left after all expenses are paid. This means that you can have a high revenue but low profit, or vice versa. 

It’s important to understand this distinction when making decisions about things like pricing, marketing, and expenses. If you’re not careful, you could end up putting your business in a difficult financial position or make it flop altogether.

Profitability Metrics

8. Not Having a Clear Understanding of Cash Flow

Many small business owners don’t have a clear understanding of how cash flow works and how it affects their accounting. This can lead to big problems down the road, so it’s important to take the time to learn about it. When you don’t understand cash flow, you can’t make informed decisions about things like purchasing inventory, taking out loans, or hiring new employees. As a result, you may end up in a difficult financial situation very quickly. 

Additionally, not understanding cash flow can make it difficult to maintain accurate financial records. This is because your records will not reflect the true state of your business’s finances, so you’re more likely to make poor, costly decisions. Trust us: Take the time to learn about cash flow and how it affects your accounting. Furthermore, keep in mind that putting proper systems in place (and having accurate reporting) is the looking glass to see your actual business cash flow. Doing these things will help you avoid costly mistakes and keep your business on track.

We’ve talked about 8 common accounting mistakes that ecommerce businesses make and how to avoid them. Have you made any of these mistakes in your business? What other tips do you have for keeping your books in order? Let us know in the comments below.


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About Peter Eastvold

BlackRock Business is a progressive company centered on helping small and medium businesses alike. Peter Eastvold comes from a background in Network Engineering and Computer Science. Bringing along his tool-set from numerous IT and Computing jobs, he enjoys being informative and helpful, pointing out useful workflows and time saving utilities that can supercharge business efficiency. BlackRock Business has worked diligently to bring others the instruments and training needed to keep their book-systems running smoothly. With the advances of modern technology and the work-anywhere ability of the internet, BlackRock has made a name for itself, helping retailers, manufacturers, firms, and businesses of every kind across the nation.

The Webgility Team

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