2. Pick the correct payment gateway
Online Store Accounting - Payment Gateways
Selecting a good payment gateway for your online business isn’t an accounting tip – it’s an accounting essential, one that will allow your company to make money and submit its taxes correctly.
Your payment gateway allows your customers to pay for goods. You can then reconcile this with your accounting software, so you can keep a record of these payments.
This is vital because it shows the revenue of your company, something that matters for two reasons.
Firstly, it lets you see how much money you really are or aren’t making. Secondly, it lets the government understand how much money your business is making, allowing it to tax you correctly.
Picking your payment gateway is a big decision and I recommend you research the available options carefully before you make your choice. My tip is that you see what your fellow business owners are saying about the different payment gateways – you can find this out by checking TrustRadius, a software reviews site that publishes the thoughts of real users.
3. ensure you have the correct tax setting
You need to pay the right amount of tax and having the right setting on your online store helps ensure this happens – it really is that simple.
Of course, as with many things to do with your online store, getting this right depends on the store builder you’ve used. So check the guides, blogs, and FAQ sections of Magento, Shopify, Squarespace or whatever provider you’ve selected.
If you don’t do this then there are two unwanted tax scenarios you’ll face – one, you don’t pay enough; two you pay too much.
If you don’t pay enough tax then you will be asked to make up the difference.
This could be as simple as paying what you owe or it could be as difficult as paying a fine too. Either way, the chances are you won’t have planned for this additional expense, so you’ll need to settle the difference by drawing it from your company accounts.
If you pay to much tax then you can ask for it back.
This might be as painless as submitting a claim and getting your money. However, it might be as painful as going through a long reclamation process, one that drains time, resources, and money from your company. Either way, in the short-term your business has less money and that might have held back your expansion plans unnecessarily.
4. record your true revenue and expenses
It’s not enough to record what you’ve sold and how much for – you need the true cost.
What I mean by the true cost is everything that goes into getting your goods ready to be sold – from the moment of conception all the way up to when they’re accounted for in your tax submissions to the government.
Online Store Accounting - Cost of Goods Sold
This is known as the Cost of Goods Sold (COGS) and it covers the following things (and more):
- Customer service
As you can see, it covers everything you can think of that’s involved in selling your products.
The reason this is so important is that it tells you the operating costs for your business – it’s not enough to say that it costs $10 to physically make your products, you sell them for $50, and hence your profit margin is $40.
You need to account for everything because it may be that the not so hidden costs come to $50, meaning that you’re actually making a loss of $10 for each product you sell.
My first tip is that you really understand what COGS means. My second is that you speak to an accounting professional. Because while you know your business inside out, they know COGS inside out. That means they can properly mark the costs, so you don’t over or under-represent them.
Why is this so important? Because COGS is an expense, meaning that if you’re not recording it correctly then you’re not paying the right amount of tax.
5. keep to your accounting deadlines
Online Store Accounting - Key Tax Dates
I’ll keep this last tip short and to the point, because there’s really not that much to it – know what your accounting deadlines are and then stick to them.
There are a lot of dates to know and rather than bore you with all of them, I recommend you read this article on the key dates for the US 2020 tax year.
My first tip is that you manage this yourself. However, if you’re concerned about staying on top of things then you can either use a tax calendar or enlist the services of a professional to do it for you.
A lot of what I’ve said in this article is straightforward stuff that’s inspired by a central theme – know what your requirements are and then follow them to the book.
It’s an accounting principle that can be applied to any business and any role, but is never more important than when it comes to the accounts of your own company.
Article by community contributor:
Kayleigh Alexandra is passionate about
helping startups succeed. She blogs at Microstartups.org and donates profits
from the website to charities that help people reach their full potential.