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What Business Records Does an eCommerce Business Need to Keep?

Start 2022 off right, with a process for accurate record-keeping you can rely on.

Accurate record-keeping isn’t just good practice, it helps protect your business and even leads to higher growth. With cash flow (or lack of) putting intense pressure on startups, maintaining a record of cash in and cash out is vital, especially in eCommerce.

Keeping accounting records doesn’t have to be intimidating, with a little understanding of the basic principles this is a responsibility that can be taken up with confidence. This blog will help you to track, record and appreciate your eCommerce accounting records.

Keeping accounting records

What is record keeping?

Whether you’re a brand new startup or an established eCommerce business, recordkeeping is an essential part of managing and ensuring the smooth running of your business. Maintaining accurate records helps you to recognise and understand threats, save money and grow.

Business records to maintain can include:

Business expenses

Customer list

Purchase orders

Sales records

Vendors

Receipts

Accounts receivable

Employee information

Banks statements

Accounts payable

Tax documents

Contracts

Invoices

By keeping these records, you can unlock many benefits, such as understanding how much cash you have or need, in order to make investments or capital outlays. Being able to set prices at the right point to be able to cover expenses and meet margin goals is another important result of record keeping. A less glamourous, but equally important benefit, is preparing yourself for tax payments and being ready for audits!

Summary of basic records:

Business expenses
The costs that are incurred in the ordinary course of your business. These expenses apply to everyone from a sole trader to huge multinationals. These expenses are recorded on the income statement.

Accounts receivable
An asset equal to the outstanding balance of invoices billed to customers. Or in other words, the sum of all invoices sent but not yet paid.

Accounts payable
The amount of money outstanding to vendors/suppliers that haven’t yet been paid out. This would be a liability for your business.

Customer list
This is essentially any and all eCommerce merchant customer and subscriber lists. This can be in the form of databases, physical files or other customer records and information such as email, phone numbers and addresses.

Vendor list
This is a selected or contracted list of suppliers for your company.

Invoices
These record transactions between buyers and sellers. The terms of the transaction are usually recorded on the invoice, such as when payment is due.

Purchase orders
These are commercial documents sent from a buyer to a seller that indicate the type/quantity/price of goods or services it intends to purchase. They are used to control and organise the purchasing of goods and services.

Receipts
These are written acknowledgements that a good or service has been transferred. They usually record the details (timing, cost, location) of the transaction.

Banks statements
These provide a summary position of a bank account at a point in time.

Contracts
These are a written spoken agreement, concerning such things as employment and sales, that are intended to be enforceable by law.

Just from this basic list, you can see how maintaining these records can benefit your business.

By keeping accounting records your business can plan and undertake projects in a more strategic way. Ensuring that you move towards your business goals and keep a healthy cash flow.

Now we know what record keeping is, we need to know why it’s important.

Why is it important to keep accounting records?

The importance of record-keeping can’t be overstated, and there are many reasons why it’s vital for your business's success. Let's run through 4 of the many reasons!

1. Recognising tax deductions/liabilities

By keeping correct, precise and up-to-date accounting records, you can give yourself a stress-free time when it comes to talking to the tax authorities. Maintaining detailed financial records for your company allows you to identify and claim any tax deductions which might be available to you. Without accurate records, you may not be able to prove eligibility and this could mean leaving money on the table. It also means you can be confident that you’re not overpaying on tax and that your finances are structured in such a way as to be as tax efficient as possible. This means more money for you. It also allows you to plan and prepare throughout the tax year, helping you to estimate your tax liability so that there are no nasty surprises in April!

2. Capital raising

Transaction records are really important when it comes to raising capital. Investors and lenders will not take your business seriously if you can’t show that your business operates in a way that would allow them to get their money back. If you can’t prove your cash flow, it may as well be zero. No lender will provide capital based on a slick pitch alone, the talk must be backed up by transaction records, bank statements and other financial reports. These can give a true picture of your enterprise and allow lenders/investors to make decisions that ultimately benefit everyone. By not keeping records properly you may end up borrowing on less than ideal terms or having to give up more equity than you would like.

3. Fraud and other financial anomalies

Maintaining records doesn’t stop your company from becoming a victim of fraud, but what it does do is highlight when it has happened to your company. Up to date and accurate records are harder to manipulate and allow you tightly track any financial activity in your business. This means that should fraud occur, the records will show how it happened, how much money was lost and where that money went, making it easier to investigate and hopefully recover.

Banks and other financial institutions aren’t perfect, like us all, they make mistakes. Being able to spot these and sort them out is so much easier if your account records are current.

4. Financial performance

Keeping accounting records gives you a clear and present look at the state of your company’s financial performance. A sort of business “health check”. Quickly being able to see how much cash your company can call upon and how much your customers owe you whilst being able to spot trends in your cash flow can all help you plan and execute business strategies.

Without keeping precise records you’re driving with a blindfold on. Being able to navigate markets and economic conditions is difficult enough without making it harder for yourself. So, unlock the full potential of your business by focussing on good record keeping. But where to start?

Bookkeeping basics

If you’re going to do something, you may as well do it well. This section will explain some basic concepts that can help you make the most of your record-keeping and prevent them from becoming troublesome.

It’s not personal, it’s just business

This might sound obvious, but make sure you separate your business and personal finances. Using business accounts for personal use mixes your finances and makes it much more difficult to monitor income and expenses.

Having separate accounts is the easiest and most obvious way to delineate your transactions and monitor your business without spurious personal transactions muddying the waters. Being able to create financial reports and identify tax deductibles is much more time consuming if you have to split off personal dealings, as you’ll likely have to check (or pay someone to check) through every transaction just to make sure. When it comes to paying taxes, this is really important as claiming errors based on incorrect numbers could have serious consequences.

Single or double-entry?

Single-entry bookkeeping is a way of accounting for your businesses finances. Single-entry refers to there being one entry per transaction, and each entry records money flowing in or out of your business. Financial transactions are recorded in a consistent way, which can be online or offline, with information such as date, transaction description and expense/income classification being documented.

Double-entry bookkeeping records each transaction twice. Two separate accounts of the transaction are kept, one a debit and the other credit, making sure that income, expenses, assets, and liabilities all reconcile appropriately.

Whichever method you adopt it’s really important that you’re consistent. Similar transactions and dealings should be recorded in a coherent and reliable way.

Your general ledger

A general ledger is a way of keeping a record of all your financial activities. It makes it simpler to find transactions without the laborious process of having to sift through bank statements. Accounts on the ledger generally include assets, liabilities, equity, revenue, and expenses.

  • Assets – Financial resources or physical ‘things’ that have intrinsic value that's owned by your company. These include your inventory and accounts receivable.
  • Liabilities – These are the financial obligations (such as debts) owed by your company. This could be obligations to suppliers (accounts payable) or banks (loan repayments).
  • Revenues – This is the money that is generated by your business through its normal operation, such as the income from sales of a product or service.
  • Expenses – This is any money that is paid out from your company in order to pay for assets or services, this includes buying supplies and paying employee wages.
  • Equity – This is the value of your business after all the liabilities have been subtracted.

Keep. Track. Of. Everything.

Keeping on top of bookkeeping can be a time-consuming process, but a worthwhile one. As already mentioned above, if you’re going to do it you may as well do it well, anything less will only cause issues later, possibly costing you more time than having done it properly in the first place. Each financial transaction must be accurately entered into your ledger and tracked so that payments in and out of your company balance.

Keeping track of all this can mean that on any given day you may need to collect receipts, manage travel expenses and reimburse employees for costs. This can quickly become unwieldy if neglected for even a short period of time.

Being on top of your record-keeping means tracking and accounting for everything. From buying a building to improve your warehousing capacity down to buying your team coffee before a meeting. Each transaction must be classified and accounted for.

Best practice

Now we’ve discovered the bookkeeping basics, let's look at the things we can do to avoid the pain that making mistakes can bring. Most of this ‘best practice’ is pretty intuitive and common sense but it’s worth spending the time to read and fully understand them.

Fees. Fees. Fees.

One of the benefits of running an eCommerce business is the lack of bricks and mortar high-street premises and the associated costs they bring. However, there are still fees that need to be factored in, such as logistical and transaction fees. You need to account for all of these and ensure you keep a track of them so that they don’t eat into your margins.

Examples of fees affecting an eCommerce business:

  1. Merchant fees: Online payment processing often incurs a small charge. There might also be a fee to pay for the ability to process card transactions over the phone.
  2. Website hosting fees: Online marketplaces may charge fees to sell through them. If you have your own website, you may have fees to pay for it being hosted online.
  3. Shipping fees: All shipping methods cost money. To remain competitive, you may have to offer 24hr shipping or “free shipping”, these premium services come at a price.
  4. Customer return fees: When customers want to return an item, it’s likely you’ll have to bear the cost of this. Free returns are pretty standard in the eCommerce marketplace now so these fees will need to be factored into your business model.
  5. Inventory management: Using a software solution to manage inventory can be cost-effective and prevent waste, however software providers will charge for the use of their products/services.

Inventory management

To build a profitable and scalable eCommerce business you need to understand inventory management. Regardless of the size of your business and the types of goods you sell, it's critical to maintain a record of your assets and sales. This can be complicated if you sell across multiple platforms, and it may be that you require inventory management software in order to make this as efficient as possible.

Having up to date or even real-time inventory data can allow your business to ensure it never overstocks or oversells, both of which can be expensive errors to make. By accurately recording your inventory you can begin to make forecasts and predict customer habits, allowing you to be ahead of trends.

Tax doesn’t have to be taxing

Don’t forget about your tax deadlines. Don’t pretend it’s not due. Don’t neglect to recognise the importance of tax deadlines.

Tax deadlines can be stressful and problematic, but by building in reminders and time beforehand you can complete your tax returns and follow processes without any undue turmoil.

Accuracy in your record-keeping throughout the year will help in making the process as frictionless as possible while ensuring HMRC aren’t chasing you and issuing late penalties.

Expenses? Track them

These can be time-consuming and difficult to classify, especially when your team come back from London with pockets full of train tickets and coffee receipts! But it’s really important that transactions are categorised and fully recorded. Items like mileage also need to be logged before it’s reimbursed.

Daily/weekly/monthly tasks

The eCommerce journey is a fast-paced and difficult one at times. There are many things to think about and with your channels open 24 hours, 7 days a week, it can feel like there’s not enough time to get them all done. However, with the use of technology and software, many tasks in bookkeeping can be automated or streamlined and this frees up your time for more important things. With that in mind, it’s still important that you understand booking and approach it with the seriousness it deserves. In this section we outline some tasks that need to be done daily, weekly and monthly. Thinking about them in this way can help you prioritise and schedule tasks.

Daily

Each day an important, but a straightforward aspect of record-keeping is keeping and logging your receipts. This is an important pare trail for your business activities and includes everything from large purchases of stock down to toner for the office printer. Receipts will come in different formats; regular suppliers may email you receipts and others may provide paper copies. Whether your record-keeping uses software or not, there needs to be a system for collecting, recording and categorising these.

Why are receipts so important? Without them, you will not be able to claim the tax benefits for all your legitimate business expenses.

Having a system in place to keep track of receipts will help make them readily available (and searchable) so that in future if you need to work with them, you can do so efficiently.

Weekly

This element of your bookkeeping isn’t a huge deal and you’re not expected to block off a whole day to dedicate to these “weekly tasks”. But there are certain things you need to keep an eye on.

Reporting – it can be an advantage to run certain reports weekly, such as:

  • Accounts receivable: These are assets equal to the outstanding balance of invoices billed to your customers. By running this report weekly, it can ensure your business is protected from late payments and highlight potential debtors early on.
  • Inventory report: Understanding your inventory is basic stuff for an eCommerce business. Knowing how much of each product is selling, or not, and how much money is tied up in stock allows you to make short-term changes in order to meet longer-term goals. For example, promoting products that are taking up warehousing space, or buying in popular products that are unexpectedly popular.

Invoicing – because you want to get paid!

Being paid on time is important in eCommerce because often there is a balancing act or “just in time” element to receiving payments and in turn paying suppliers. The supply chain can be long and for smaller companies invoices can make up a large proportion of their assets at any time.

Ensuring that your invoice is regularly and accurately can help prevent slow-paying customers and also ensures that your relationships with vendors is straightforward and based on clear and transparent terms. By completing this process weekly, you can ensure that invoices and reminders can be sent out quickly.

Monthly

Reconciliation in accounting refers to the process of comparing internal financial records with external monthly statements to make sure they agree.

This is really a check to make sure that when you’re keeping accounting records, they have been recorded correctly and accurately.

By performing a reconciliation once a month you can check that nothing has been double-counted or missed entirely. Whether this is done manually or through software, the accounting records you keep should match your financial accounts.

Profit and loss

Up to this point all the records we’ve discussed form part of a bigger picture. The profit and loss statement, which gives you a summary of revenue, costs and expenses. Producing this report is valuable as it shows the ability of your company to generate profit. They also clearly show where any issues are, for example, if costs are increasing this will be visible on the profit and loss, and especially clear when compared to previous months. They provide an insight into performance and help give you the information you need to be able to make strategic decisions.

Software solutions

Record keeping can be made easier by employing a software solution to help. The benefits of using software include:

  • It saves time
  • Key financial reports are generated instantly
  • All financial data and accounts can be synced
  • Data accuracy is improved
  • Payroll is simplified
  • Can provide detailed insights into your business
  • Tax filing is streamlined

Using accounting software can save time and money, but not all businesses need them. It’s important you assess the needs of your business before signing up for an expensive package that has features that won’t add value to you.

In any business, record keeping is important. If you can manage a system of paper records or spreadsheets then you can save on the expense and do so. But this must be balanced with the time-cost it takes to prepare and keep up to date with those files. In accounting software, key information is always on-hand and easily retrieved.

In summary

The accuracy of record-keeping isn’t just good practice, it’s crucial to the maintenance and survival of your eCommerce business. It helps to protect your business from internal and external threats and in time can lead to growth. One big killer of eCommerce startups is cash flow, making keeping a record of cash in and cash out of your business essential.

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If you’re interested in protecting the financial health and performance of your company, we're here to help. Our best in class finance teams work with you to navigate the fiscal landscape and move you and your business into high growth. We carry out all the accounting basics whilst at the same time ensuring that you get to see the bigger picture. Our tax experts can assist you in structuring your business efficiently, while maximising any available tax credits and relief, allowing you to focus your time and resources on other areas of your business.

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