Essential accounting practices for online businesses

Good accounting plays a vital role in running a successful online business. Here, we take a closer look at some of the essential accounting practices for online businesses to sustain and promote growth.

The internet has opened a world of opportunities for businesses of all sizes. The advent of smart technology, cloud computing, social media and ecommerce means even the smallest enterprises can reach a global audience of potential customers, to sell their products and services.

Digital marketplaces like Etsy, Amazon, eBay and Shopify have helped transform the way people buy products and consume information, which has prompted many businesses to beef up their online presence.

However, running a successful online business is no different to running a traditional bricks and mortar one. Cash is still king, and without the right accounting practices in place, online traders can quickly lose track of their finances, which can lead to a whole host of problems.

Here, we take a closer look at some of the essential accounting practices online businesses need to be aware of to help them sustain and grow.

Choose the right accounting software

Picking online accounting software that suits your business best can be challenging, especially if you don’t know what to look for. There are many software packages out there, and all have their pros and cons, so it might be a case of trial and error before you settle on the one that best suits your needs.

Luckily, most market-leading accounting software providers offer free or discounted trials, so you can try before you commit to a long-term deal. Some of the best tools on offer include:

  • Xero is popular accounting software that’s easy to use. It boasts a wide range of intuitive features for online sellers, including easy reconciliation for Amazon or eBay transactions, cash flow integration and inventory syncing.
  • QuickBooks Online is a cloud-based system offering a range of tools to help simplify your accounting, invoicing, expenses and bookkeeping. It’s scalable, integrates with many third-party applications, and can be accessed via a mobile app.
  • FreeAgent is another popular online accountancy tool to help you manage your tax, expenses, cash flow and invoicing. What’s more, it’s free if you do your business banking with NatWest, the Royal Bank of Scotland, Ulster Bank NI or Mettle.

It’s important to stress here that while online accounting software can help you streamline your financial processes and run your online business more efficiently, it’s essential to work with an experienced accountant for things like financial year close and tax returns, payroll and month-end close (if applicable). This will help ensure all your submissions are correct, your processes are fully-compliant, and you’re not under or over-paying your tax liabilities.

Open a business bank account

Whether you’re a one-person enterprise or employ a team of people, it’s essential to have a dedicated bank account for your online business. You may think this is a hassle, particularly if you run your business on your own or it’s a side-hustle to your main job, but trust us, without a separate business account, it’s easy to lose track of your finances.

Having a dedicated business account will help you separate your personal expenses from your business expenses, keep track of your invoicing and payments, get a better handle on your tax and National Insurance and simplify your annual tax returns. It will also give you a clearer picture of your cash flow, which leads us neatly on to our next tip…  

Cash flow management

There’s an old cliche in accounting circles that ‘turnover is vanity, profit is sanity, cash is king’, and it still holds true to this day. So, when you run a business, no matter how big or small, keeping on top of your cash flow – the amount of money moving into and out of your company – is critical. Many small businesses fail because they don’t have the cash in the bank to trade solvently, even if they’re owed thousands in unpaid invoices. Staying on top of your cash flow will help you nip any potential issues in the bud before they become insurmountable problems.

Keeping the cash flowing through your business will also aid its growth, as you will know precisely how much cash you have in the bank to invest in developing your team or purchasing the equipment or technology you need to expand your empire.

Balance your books

This one links closely to our first tip. It’s vital to keep your books up to date and have an accurate, real-time snapshot of your sales, liabilities and bottom line at any given time.  

This will help you forecast better, prepare for any seasonal changes in sales or demand, keep on top of sales, purchases, expenses and other transactions, and ensure there’s enough money in the business to meet your overheads and additional ongoing costs.

Your accounting software will help you get on top of this, so choose it wisely.

However, it’s always advisable to work with a professional accountant to ensure your books are always balanced and advise you on any potential issues that need addressing.

How can SW&A Accountants help?

No-one said running a business would be easy but keeping on top of your finances can help things a little less painful and stress-free.

However, when you run an online business, there are usually 101 other things to focus on before even thinking about your accounting.

That’s where SW&A Accountants can help.

We’re a friendly team of skilled and experienced accounting experts, offering a full range of financial services to clients from a host of different sectors. Rather than taking a ‘one size fits all’ approach, we address each client’s specific needs, using our extensive experience and knowledge to give the best advice for their business.

So, if you run an online business but feel lost at sea when it comes to your accounting, give us a call to see how we can help get your journey back on track. We’d love to hear from you.

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