Learn bookkeeping basics to manage your store's finances
Bookkeeping often gets a bad rap for being tedious and overly complicated, but it’s actually far from that. It’s essentially composed of one simple activity – documenting all the money that goes in and out of your business.
This is an important part of running a business, not only to help report profits and expenditure for tax purposes, but also for monitoring the financial health of your company. Balancing the books is therefore essential to keeping your online store up and running, while giving you an overview of opportunities to reduce costs and increase margins.
Financial statements to know about
These are the three financial documents virtually all businesses need:
Balance sheet
This records your assets, liabilities and owner’s equity. Assets are your inventory, cash and accounts receivable (within one year). Liabilities are business-related debts, while owner equity is what you have left after subtracting liabilities from your assets. Positive equity is a desirable position to have.
Income statement
This includes all money brought in during a fixed period, such as a month, quarter or year. It’s split into operating income – what you make from normal business activities, such as selling items in your inventory – and non-operating income, which can be money generated from returns on an investment or the sale of property.
Cash flow statement
This shows all the funds that go in and out. Include all costs like rents, inventory and upkeep, along with every source of income for the given period. This gives you a snapshot of gross revenue, net profit and exactly where cash is moving or whether it’s being unnecessarily wasted.
Tracking your inventory
If your online store is based on the sale of physical items, then it’s crucial to track how many units you’re stocking as well as cash flow your inventory generates for the business, along with any shrinkage, or losses, that occur.
Regularly update financial records
It sounds obvious, but you should always make sure your financial records are current. That means recording all your transactions, noting down every bill, invoice and salary payment.
You’ll need to be aware of what your employees are doing as well, which means collecting receipts from them and giving reimbursements for any costs they’ve carried, such as travel expenses.
Keeping careful track of your financials will also help you with budget planning and tax deductions. Here’s how you can plan out your bookkeeping activities:
On a daily basis: Keep track of all your receipts, invoices and other documents in folders
On a weekly basis: Record cash flow and variable expenses – all your earnings as well as new and ongoing costs
On a monthly basis: Block time to balance the books. Document your revenue, add up your expenses and then calculate your monthly net profit from what’s left over.
