Navin, Author at E2E Accounting

How to Understand Financial Reporting

Table of Contents

Understanding Financial Reports
How to read financial reports
Conclusion

One of the most essential skills any business owner, be it an investor, entrepreneur, or even manager, must possess is reading the company’s financial health. This knowledge not only helps the investors benefit from promising business opportunities but also avoids any undue risks. For professionals, entrepreneurs, or managers, analysis of financial reports helps them make strategic business decisions for the growth and success of the business.

Reading, understanding & doing analysis on financial reporting is a piece of cake for any accountant or financial professional; however, for those new to the financial world, these documents and terms are no less than jargon!

But the great news here is that with some basic knowledge and understanding, anyone can learn how to read, understand, and analyze these financial reports like a pro! This blog will help you gain this understanding.

Understanding Financial Reports

Financial Reports or financial statements are the primary tools that help ascertain the company’s financial health by providing an overview of the business’s assets, liabilities, expenses, revenue & equities.

The foundation of financial reporting is based on financial statements like balance sheets, profit & loss accounts (aka income statements), cash flow statements & statements of change in equity. These statements are the key to any financial reporting as they provide a snapshot of the health & performance of the company.

Balance Sheet

A balance sheet summarizes an organization’s assets, liabilities, and equity at a point in time. It provides insight into the overall financial position of the company’s assets (owned by the company) versus its liabilities (owed by the company) & owner’s equity (owner’s contribution or the amount invested by the shareholders). Equity represents the residual interest in assets after deducting all liabilities. The balance sheet standalone will not provide you with the entire information; it is necessary to examine the other financial reports to comprehend the company’s financial health.

Profit & Loss

The profit & loss account, or the income statement, summarises the details of the gains, losses, expenses, & revenues of the activities performed by the business during a specific period. It helps to determine whether your business is profitable or not. By monitoring trends over time via comparative reports, you can see if your company has grown its net income consistently throughout different periods.

Cash flow statement

The cash flow statement provides us with a picture of the inflow & outflow of the cash within the business during a particular period. This statement is crucial for monitoring liquidity to prevent you from running out of money when needed! The three key sections of the cash flow statements are (1) cash flow from investments, (2) cash flow from financial activities & (3) cash flow from operating activities.

Statement of Changes In Equity

Statement Of Changes In Equity helps track any changes made to shareholder’s equity over the period due to various transactions such as dividends paid out or new shares issued.

How to read financial reports

Every financial report will provide you with a different insight into the company’s financial state. Understanding these financial reports can help you make better decisions about investments or opportunities for growth.

The first step of reading a financial report is identifying the different types of financial statements, like Balance Sheet, Profit and loss Account, and Cash Flow Statement. These statements provide specific information about the company’s assets, liabilities, income, and expenses.

But while reviewing all these statements, it is essential to look at trends over time rather than just one isolated snapshot. So, comparing current results with the previous year’s or quarter’s results is a must. It will show you whether the company has been growing or plunging.

Yet another critical aspect while reading a financial report is to analyze the ratios derived from the data presented. Financial ratios will provide insight into the company’s liquidity, profitability, and operational efficiency. It will also offer valuable information about how well a business performs financially.

By efficiently dissecting every element in the financial reports, you will gain adequate knowledge of which areas you must focus on while looking at your company’s finances.

If you are still stuck in understanding and reading your company’s financial reports, E2E Accounting can help you interpret complex accounting concepts presented on financial reports efficiently.

Conclusion

Understanding and reviewing these financial reports might seem challenging. Yet learning to read and interpret these financial reports with adequate knowledge and tools will help you gain valuable insights into any company’s financial health.

You can gain valuable insight into a company’s finances by familiarizing yourself with different financial statements, like balance sheets, profit & loss accounts, and understanding:

Whether the company is in debt or able to clear all its liabilities.
What are the current profits for the company?
Whether the profits are increasing or decreasing.
What are the levels of investments within the company?
Is the company’s operational expenses within control as compared to its revenue?

The financial ratios can also help you analyze a company’s profitability, liquidity, and overall health, and by reading cash flow statements, you’ll be able to see where money is coming in and going out of a business.

If you want to gain in-depth knowledge on making financial decisions and understanding the company’s financial health, E2E Accounting can help you provide this knowledge and expertise. By outsourcing your accounting needs to E2E Accounting, you can be assured that all your financial reporting is accurate while freeing time for other essential tasks!

Cash Flow Management in Tough Times

Table of Contents

How to manage your cash flow in tough times
Tips for improving your cash flow

Cash flow management is a critical aspect of running any business, but it becomes even more crucial in tough times. With recession looming and cost reduction measures becoming necessary, ensuring that your cash flow stays healthy can be the difference between survival or closing up shop. In this blog post, we’ll explore what cash flow management is, why it’s essential for businesses facing economic challenges, and some practical tips on how to manage it effectively – including outsourcing your bookkeeping and reducing aged receivables. So let’s dive into the world of cash flow management!

How to manage your cash flow in tough times

Managing cash flow during tough times can be a daunting task for any business owner. However, it is essential to get your finances in order if you want to survive and even thrive during economic downturns. Here are some tips on how to manage your cash flow:

1. Create a budget: A budget will help you understand your expenses and income, allowing you to identify areas where cost-cutting is possible.

2. Reduce overhead costs: Look for ways to reduce overhead costs like rent, utilities and salaries without compromising quality.

3. Monitor accounts receivable: It’s crucial to keep an eye on aged receivables that may impact your cash flow negatively.

4. Outsource bookkeeping services: Outsourcing non-core functions like bookkeeping can save money while ensuring accuracy in financial management.

5. Focus on generating revenue: Explore new markets or products that could generate additional revenue streams for your business.

6. Leverage credit wisely: Use credit when necessary but ensure timely repayment of debts so as not to incur interest charges or penalties.

By following these tips, businesses can effectively manage their cash flow even during challenging times and navigate through recessions with ease whilst staying financially stable at all times!

Tips for improving your cash flow

Improving your cash flow is key to navigating tough times. Here are some tips that can help you manage your cash flow more effectively:

1. Prioritize customer payments: Ensure timely collection of payments from customers by reviewing and following up on aged receivables.

2. Cut costs: Find ways to reduce expenses without sacrificing quality or customer service, such as outsourcing non-core functions like bookkeeping.

3. Negotiate with suppliers: Speak to your suppliers about payment terms, discounts and early payment incentives.

4. Manage inventory levels: Keep track of inventory levels and avoid overstocking items that aren’t selling well.

5. Monitor cash reserves: Keep a close eye on your bank balance and forecast future income and expenses to ensure you have enough cash on hand to cover bills when they come due.

By implementing these tips, you can improve your cash flow management during tough times while maintaining the financial health of your business in the long term with E2E Accounting.

Why Having A Bookkeeper Is Important In The Current Environment

Bookkeeping is an essential aspect of business. Accounting records are needed for calculating a company’s obligations and its receivables, to look at its history and plan for the future. A bookkeeper’s role is to help you organise and manage your books and maintain proper and accurate financial records.

In the current economic climate, resulting in no small measure from the series of lockdowns in the UK, a bookkeeper is more important than ever, to help your business navigate the myriad rules and changes, manage compliance, assets, liabilities, and taxes without errors or miscalculation. The bookkeeper’s role is thus vital to the overall functioning of any business.

We discuss here some crucial issues for you to consider as you make this decision.

1. Focus on your Core Business

Bookkeepers ensure that financial records are correct and up-to-date. This allows you to focus on your business’s core activities. A bookkeeper can help you grow your business faster by providing reports that analyse business and growth trends, especially in today’s COVID19 affected economy. Cash and accounts forecasts made by your bookkeeper, studied with market movements, help you plan for the future.

2. Profitability Analysis

Bookkeepers track your income and expenditure and inform you about where you should or can cut costs and where you must increase your revenue to ensure you have sufficient funds available for your business. Complete access to the financial records of your business allows the bookkeeper to monitor profits or losses at all stages. As the economy recovers slowly, after several waves of coronavirus, the regular updates you receive from your bookkeeper about your assets and liabilities enable smart changes in real-time. Hiring a bookkeeper brings you a great return on your investment.

3. Finance management

The company’s efficiency depends highly on the precision of bookkeeping. Business owners may fail to observe how they’re spending their money, but a bookkeeper’s job is to point out where it is going and whether or not it will generate profit. An efficient bookkeeping service provides correct and accurate data in real-time helping SMEs to grow and flourish. Corient can help you manage your finances better and eliminate unnecessary expenses.

4. Manage compliances

Your bookkeeper ensures that the business’s financial records are kept in order, accurate and updated as per the government’s rules and regulations. They alert you to changes in the regulations and update the records accordingly. They ensure that all tax compliances are timely, filing returns and reminding you to pay the liabilities.

5. Grants and schemes from HMRC

SMEs have constantly been on the lookout over the past year for financial support in a halting economy. Various grants, loans and Government schemes are keeping many businesses afloat. Your bookkeeper would have helped you with the eligibility criteria, the documentation and the numbers to apply for the relevant grants, loans and/or schemes. They would have, and continue to, help you manage monthly compliance and eventual repayment where necessary. They calculate future cash flows to suggest the loan repayment best suited to your business.

Six Ways For Entrepreneurs To Manage Their Books

Every successful entrepreneur will tell you that a very significant part of their success depends on the ability to manage their books effectively. But, the primary challenge for an entrepreneur lies in learning how to manage their books and bookkeeping records with minimal effort.

Bookkeeping can be a very tedious and time-consuming task for an entrepreneur. This is because bookkeeping is not just about being organized but, more importantly, about being effective.

We explore in this article the six best ways for entrepreneurs to manage their books and bookkeeping records effectively.

1. Get The Perfect Accounting Software

There is no one “perfect” accounting package or software. A full-function accounting software, which meets your current needs and will expand to meet your future ones, though, is a hidden asset. It allows you to easily handle the accounts help you manage your business proactively.

With the variety of accounting software in the market, however, there are certain questions you need to ask before choosing the one best suited for your business:

● Is it compatible with your other systems?

● Can the software import and edit existing documents?

● What features does it have?

● What is your budget & plan, and what is the price & availability of the software?

Once you have the answers to the above, your choice of accounting software becomes easier.

2. Equip Your System With Additional Software

The next thing that an entrepreneur should do for managing their books properly is to use the right business management software package. Although this may seem like a daunting task and heavy on the pocket it is quite easy and many packages are affordable. A complete business management package will take up all the manual work of your accounting, financial transactions tracking, and back-office tasks. This software package when integrated with the accounting software will bring significant automation to the system. It will allow you to focus on the core business activities instead of worrying about the books and accounts.

3. Integrate Bank Feeds

Bank feeds directly import transactions from your bank or financial institution into your software spreadsheet. This process eliminates the need to import transactions manually. Bank feeds bring the advantage of easy and straightforward automatic data entry, avoiding any manual errors in the process. With integrated bank feeds, you will be able to manage your books and your bookkeeping very effectively in a very short period.

4. Set up invoice schedule

The demands on a solopreneur or an entrepreneur’s time might lead to loopholes in billing their customers. This will affect their cash flow due to delays in receiving client payments and there will be a knock-on effect on the business. Setting up an automatic invoice generating software to raise and send clients’ invoices in line with their billing cycle will prevent this to a large extent. You can also use the software to follow a standard monthly billing cycle for clients.

5. Follow Bookkeeping Rules

Many entrepreneurs may not know how to set up their companies’ accounting systems properly. Ensuring that bookkeeping rules are followed will minimise chaos in managing the books. These rules allow one to track essentials and make it much easier for the entrepreneur to evaluate business progress using up-to-date books.

6. Diarize bookkeeping

Another strategy for managing the books is to create a weekly bookkeeping calendar. This diary should not only list the clients and updates, but also important financial and compliance dates. You might even need to diarize the availability of your bookkeeper! There are several business bookkeeping software packages available that can make the process of managing your books a breeze.

If you are looking for the best Bookkeeping Software for your business, Corient can help you! Corient enables you to keep your accounts up to to date helping you manage and grow your business

8 Common Bookkeeping Mistakes Made by Startups

Bookkeeping is a crucial element of any business. Without it, you won’t know if your business is successful or not! Without regular and meticulous bookkeeping, businesses will not be able to determine their profits and losses and make the right moves to improve their business performance.

Even though most Start-up owners are aware of the importance of bookkeeping, many still ignore it and fail to manage their business.

Here are the eight common bookkeeping mistakes that Startups tend to make:

1. Hiring an inexperienced bookkeeper or no one at all

Bookkeeping can be a tedious and time-consuming task, especially for those who are just starting. The first and biggest mistake that most startups make is not hiring a qualified bookkeeper. If you are trying to handle your business books yourself, it is advisable to stop right now! Hire a professional who has significant experience in bookkeeping.

For example, suppose you (or your inexperienced bookkeeper) forget to enter a client’s invoices or the sale amount into the system, that will have an immediate impact on your bottom line. A professional bookkeeper will help you avoid errors and save time &and effort in following industry rules and regulations.

2. Multiple Accounting Sheets

Another common bookkeeping mistake made by Startups is creating multiple accounting sheets and charts. The primary purpose of creating accounting ledgers is to provide an easy reference for financial management. In this way, they can track the previous day’s transactions and forecast the revenue.

A bookkeeper should use a single Microsoft Excel spreadsheet to consolidate accounting charts. These should be maintained consistently. Inability to enter or update data daily will create several problems for the business.

3. Failed Compliances

This is perhaps the gravest mistake Startups, or small businesses can make. Failing to adhere to compliance requirements, such as submitting incorrect or incomplete receipts and invoices to the tax department, will have a negative impact on tax returns. Using outdated accounting software can be very time-consuming as the information may not be updated automatically, which may lead to delays in receiving your tax refunds.

Examples of failed bookkeeping include:

✓ Incorrectly accounting for the payroll and payment

✓ Wrong bank deposits

✓ Inability to cancel the merchant account or credit card

✓ Not doing VAT returns

✓ Incomplete or wrong reconciliation of accounts.

4. Delaying Accounting till the end of the deadline

HMRC has fixed deadlines for annual compliances. However, if your bookkeeper has delayed the accounting process, you might fail to meet tax filing deadlines resulting in hefty fines and penalties. You may also miss the window for setting up a payment plan if you need to or be penalised by not being allowed to set up a payment plan in the future due to delayed filing and payment in the present.

Having an experienced and reliable bookkeeper and the necessary software will help you avoid such drastic consequences. Corient can help you with reliable software and technology solutions at affordable prices.

5. Paying personal expenses through a company account

Personal expenses cannot be claimed through the business. Irrespective of the business structure, you have to complete an annual tax return for your business. HMRC will know how much money the business has made while deducting allowable business expenses to work out your tax liability and penalties, if applicable.

If you are spending on personal items through a company account, these entries are subject to tax penalties. Using a company account for personal finances would be treated as disguised compensation, subjected to payroll taxes and potential interest. This may lead to reduced investment and hence, lack of growth.

6. Paying company expenses through the personal account

Startup owners should also avoid paying company expenses through personal accounts. It is essential to draw a line between private and company expenditure and make all business payments through business accounts.

Paying bills on time is essential for the success of any small business. However, paying company expenses from the personal account will not solve the core problem and may adversely impact personal finances.

7. Not collecting money on time

Delayed collection is detrimental to the financial health of any business, especially for startups. Delays in collection may result in severe cash flow problems or even bad debts.

Make sure you are not losing money because of faulty calculations and invoices. If accounting records are processed incorrectly, due dates are frequently miscalculated, and money is being collected late, it is time to hire a professional bookkeeper.

8. Not reviewing books regularly

Startup owners often fail to do a periodic review of the accounting records and books. Small businesses certainly do not have enough financial load to keep track every day or week. However, completely ignoring the financial books will cost you more than expected.

Many small businesses are successful because they put in a lot of time and effort into ensuring that their books are accurate and up-to-date at all times. If you have no idea how to achieve this, you can get in touch with Corient to get all the help you need to manage your books proactively.

Each of these common bookkeeping errors can cost small business owners a lot of money in the long run. Startups are already under a tremendous financial strain, and making a single mistake can cost them more than they bargained for. Therefore, it is essential to avoid these common errors to move towards success.

Top 10 Accounting Mistakes to Avoid for Small Businesses

Being an entrepreneur can be a beautiful & fulfilling journey with you being your own boss and watching your business grow from strength to strength. However, it also comes with its fair share of challenges. You are the CEO, the marketing manager, and the event director all wrapped into one. There is the constant juggle of wearing many hats including in areas one might not necessarily have any experience whatsoever. One such area is Accounting! Let’s look at the top 10 mistakes that Small Businesses can avoid in this domain.

✔ Doing it on your own.

Imagine this! You are a patissier and you run a business of baking artisanal cakes, your value-added tasks are the tasks for which customers are ready to pay you. To run a successful baking business however, you will have to undertake some support tasks as well which could be marketing and of course maintaining financial and accounting records. As much as the support tasks might be necessary and important, they do take away some of your focus from your core business activities. However, with the support activities, one does have a choice to either work on them on one’s own or outsource them.

✔ Not using Cloud Applications.

Accounting can be daunting for a business owner, but the advent of cloud computing has ensured that everyone can have organized, user-friendly, and secure accounting software at their fingertips. Using cloud accounting software provides reliable data with less room for human errors. A large amount of sensitive data can be stored that can be easily accessed by business owners thereby giving them the power to know the financial position of their business at any given point in time.

✔ Creation of Multiple Chart of Accounts.

A coherent COA is the foundation of the reporting that the business will be required to perform. From a record-keeping perspective, a Chart of Accounts is the most fundamental planning that is required of a business. Creating multiple Charts of accounts can be one of the most serious accounting mistakes a small business could make as the Chart of Accounts is the framework on which the reporting – whether for bookkeeping, GAAP, or tax – will be based.

✔ Delay in Accounting.

Regular accounting helps you track the movement of money in and out of business which helps you make informed decisions leading to a thriving business.

✔ Focusing on Revenue and not Cost.

Most small businesses want their revenue numbers to show a steady rise and who doesn’t. But in the rush to get great top-line numbers, many small business owners tend to overlook focus on cost. To put it simply, your Revenues – Cost = Profit. So, while the topline might look good, the bottom line which is the profitability of the business and which is more valuable for a healthy thriving business gets ignored. How does one achieve a balance between focusing on costs along with revenues? Ask yourself questions like: Is there a way you can save taxes? Is there a way to standardize the processes? Are you managing your inventory efficiently?

✔ Not segregating personal expenses and business expenses.

Small business owners oftentimes do not segregate their personal and business expenses given that they might be the sole proprietors of the business. This can lead to challenges when it is tax time. Underreporting/over-reporting of business expenses results in an unclear picture of the business income.

✔ Not reviewing Profit and loss accounts on a monthly basis.

A Profit and Loss account shows the health of your business in terms of what is your income and what is your expense. You can identify the costs needing analysis, and also whether your revenue is in line with your goals.

✔ Just focusing on cash management.

Cash is undoubtedly one of the most crucial financial metrics. Hence the goal of good management should be to eliminate surprises pertaining to cash and ensuring that there is sufficient cash for the business to meet its daily cash needs. Also, while excess cash might seem great for the short term, for the long term it might indicate the business did not utilize it effectively to generate more profits and indicates the opportunities the business might have lost while being short-sighted in managing its cash.

✔ Too much inventory.

While a business would always want to maintain an optimal level of inventory to avoid any future raw material shortages, it runs the risk of being too cautious and being stuck with excess inventory which eventually can lead to cash inflow issues. Excess inventory is also more susceptible to theft More than optimal inventory also means there might be slow-moving stock which is a source of working capital loss. The ideal way to manage inventory is being proactive and on top of the requirements which means accounting and recording of data must be up to date.

✔ Being unaware of compliances.

Legal compliances are an integral part of any business. Businesses need to meet compliance requirements to be able to run the operations smoothly without levy of any penalties. Knowing the compliance requirements not only helps the businesses to be on the right side of the law but also brings in a lot of customer trust. Small businesses are no exception when it comes to meeting compliance requirements. The compliance requirements can range from Legal (entity-specific compliances for businesses depending on whether they are Sole Proprietorship, Private Ltd. Company, or Partnerships) to Human resources (Labor laws) to Tax (includes Income tax, National Insurance, Corporation Tax & VAT).

Why should landlords have an accountant?

Focus on managing property and increasing property portfolio.

There are many moving parts in running a successful rental business. A great bookkeeping and accounting system is a crucial element in managing a property portfolio. Having a robust accounting system will help you plan for tax implications in advance. Not only will an accountant be of help at the tax time, but they will also provide on-demand financial help which will safeguard your business against debt or fraud. Forecasting future expenses will help you plan better and save time. This can help one focus on managing property and on expanding the business. Historical financial data will help you forecast various costs with greater accuracy thereby ensuring that you are not financially derailed, viz. what needs to be done when maintenance costs increase in winter months or when internal/external walls require repairs?

Ensure rentals are being received on a timely basis.

Rent receivable reports run by accountants show the amount of rent the landlord has earned but not yet received from the tenant. Whereas the prepaid rent report shows the rent that has been received in advance. These reports help to identify delinquent tenants in ahead of time. When the balance of the rent receivable ledger is nil, it means the landlord has received all the rent that was due to him from the tenant.

Take advantage of available tax benefits.

Even with the flurry of activities around getting the property ready for rent and choosing the right tenant, it is imperative for the landlord to stay on top of taxes viz. capital gains tax, stamp duty, corporation tax, etc.

Taxation planning ought to be done beforehand rather than afterward as it will ensure an encumbrance-free cash flow. An accountant makes certain that the landlord enjoys tax-effective property ownership. For example, as a landlord, you are entitled to a GBP 1000 tax-free property allowance. However, this rule has some exceptions, and an accountant can help the landlord with the documentation required for the ‘full relief’. Also in various scenarios, where the landlord incurs expenses wholly and exclusively for property rental business, claims part expenses, incurs maintenance, and repairs costs, is required to calculate a profit or loss for more than one property or has tax implications on account of a jointly owned property, the documentation required and the tax liability in the different scenarios can be worked out by the accountant. Prior to 2017, mortgage interest could be offset against the self-assessment tax returns which have to be filed when letting out the property. However, the government began phasing out mortgage interest tax relief by 25 percent each year in 2017. This meant that 2019 was the last year that landlords could deduct the mortgage interest paid from their income. Presently landlords are given 20 percent tax credit for their property finance costs. Since tax rules change regularly, an accountant can best help the landlord navigate the rules and identify areas for maximum tax benefits.

Ensure surplus money is adequately invested.

Owning a property is owning a long-term financial asset, the benefit of which can be enjoyed for years to come. A rental premise usually gives the landlord residual monthly cash flow, which if invested adequately gives the landlord not only a guaranteed passive income for many years but also an opportunity to build reserves. Hence hiring a good accounting professional to help one to develop financial discipline for such investments is advantageous. Some of the ways in which the landlords can invest the surplus funds are as follows:

a) Maintenance and Safety. With the change in every season, the landlord should look at which items need to be cleaned or replaced. Ensuring fire alarms/ emergency lighting are in good working condition and investing in the best quality for the same not only keep the property safe but also ensures that the landlord doesn’t incur liabilities on account of faulty systems. Any white goods requiring repairs and replacement can be done through the residual cash. These small changes make the property attractive to the tenants.

b) Prepayments. Applying the surplus cash flow to paying down the principal balance helps to knock off a few years of the loan. This can eventually give the landlord the flexibility to invest in more buy-to-let property on mortgage.

Ensure all expenses are correctly accounted.

Landlords need to ensure business and personal expenses are accounted for separately. It is best to have a separate credit card and bank account which are used only for rental property expenses. In the case of multiple properties, particularly when one has more than 3-4 properties, it is best to have a separate bank account for each property you own. For a given property one can have rental receipts going into one account along with any taxes and repairs for that property being debited to one single bank account. The expenses that can be reported include but are not limited to advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and other fees, management fees, mortgage interest, repairs, taxes, and utilities.

Usually, lenders are less tolerant of buy-to-let mortgage arrears and they are treated to a certain extent on par with commercial loans. Hence, missing out on Loan EMI’s can have some serious consequences.

Management Reporting.

A monthly property management report describes how the property is performing and what aspects of the property require focus. By and large the following reports should be covered in the monthly management report:

Balance Sheet: helps you track your current assets and liabilities and tells you how much money you have to work with.

The monthly Income and Expense statement tells you how much money you made during the reporting period and how much you spent,

General ledger transactions are the backbone for all financial reports. General ledger scrutiny will give you a bird’s eye view of your rental business

The accounts payable report tells you how much money you owe against the property. Tenant receivables: tells you how much you are due to receive from the tenants and

The prepaid report tells you how much of your expense you have prepaid

The monthly bank statements with reconciliation ensure that your bank accounts match with your ledger accounts penny by penny.

Bookkeeping Tips for eCommerce Companies in UK

The shift from brick-and-mortar businesses to eCommerce has been the highlight of the business world over the last two decades. The United Kingdom has the most advanced eCommerce market in Europe with eCommerce revenue in 2019 amounting to 693 billion in GBP. It is also the third-largest market for online retail sales. More and more retailers or product manufacturers are looking for establishing an online presence for retail distribution and sales. While this trend is here to stay, let’s look at some of the bookkeeping tips for setting up a financially stable and viable eCommerce business.

Integration of Amazon/Shopify to Accounting Software.

Managing your Amazon FBA account or Shopify account using google sheets or MS Excel is a daunting task given the different items involved such as Chargebacks, Shipping fees, Promo Rebates, Sales Tax collected, and FBA inventory reimbursement. Listed below are a few of the accounting software tools tailored to be linked with sales channels to make accounting easy and efficient.

Xero: Xero has a great user interface along with a wide selection of add-ons. It can be easily integrated with A2X or Stitch labs for a customized Amazon Seller experience. In addition, it has a mobile app enabling access to it on the move.

A2X Accounting: The A2X app connects the systems to cloud accounting to automate bookkeeping for Amazon Marketplace transactions. When Amazon creates a new settlement file, A2X can generate the summary for the same along with being able to split multiple month settlements on a per-month basis for multiple years. It works great with Xero, QuickBooks, and Shopify.

NetSuite: For accounting software to integrate with Shopify, the use of apps like Zapier and A2X is required to set up the integration. Alternatively one may find an app connector in the Shopify app store. Another way to streamline your operations is to integrate NetSuite with your online Shopify store which offers a scalable solution that seamlessly handles financial data as well as sales channels.

Clarity on Accounting for Sales- One single Invoice per month by sales channel/ Geography.

One of the functions of good bookkeeping is to help with creating projections that predict future business activity. One such area that has a huge bearing on the eCommerce business is sales. A detailed understanding of sales will help to make decisions such as which products to push, when to increase the price of a product, and to understand the seasonal fluctuations per product. Using A2X helps automate eCommerce accounting since it connects your accounting software to your sales channels, helps you track sales basis different tracking categories viz. sales per month, per channel, or sales by country. Example; you are looking for accurate sales data from Amazon but the backend report provided by Amazon will not bifurcate the numbers by categories such as FBA fees, shipping fees, warehouse fees, and chargebacks and it might all get recorded as Sales which will be incorrect. A2X can avoid this problem by automatically updating your books from the backend of Amazon. Similarly, when you want to look at your VAT liability, you can set up the sales tracking category as EU and Non-EU.

Daily bank Reconciliation to identify failed payments.

Ecommerce business is usually characterised by huge volumes and speed of exchange. The fierce competition and marketing inventions have pushed eCommerce business owners to complement their product offers with a number of collateral services such as gift cards, trial periods, flexible payment options and reduced shipping costs. The complexity of completing a transaction multiplies in a digital environment. One single online order requires the action of at least four parties other than the customer and merchants themselves – their banks, the payment processor, and the parcel delivery company. In case of cancellations, refund requests, and glitches down the supply chain, the complexity level becomes 2x. This calls for a 3-way reconciliation between payment processors, banks, and the ERP systems, which is performed in 2 steps viz. processor to bank and processor to the internal system. This will not only reduce any fraud risk but also identify any unauthorised withdrawals or bank errors.

Analytics report- Geography, product, etc.

Using analytics to uncover customer insights is a game-changer for an eCommerce business. Yet, having a very large amount of data to mine is different from having a clear insight into customer preferences. The difference lies in the ability to get the most out of your data. You may choose from different analytics programs such as Google Analytics, Mixpanel, Adobe Analytics, and Statcounter to name a few. In addition to an Overview Dashboard, some valuable analytics reports include:

1. Sales by Channel. The data in this report will help you identify which channel sources are successful or underperforming.

2. Sales by billing country. This report helps you identify which countries contribute the most to your revenue so that you can determine where to invest in new markets.

3. Sales by Product. This report helps you identify the bestselling products by season or time period.

These reports enable you to see margins on an item-by-item basis. When you total the cost of goods sold and link it to relevant suppliers, you can see how much money is being spent on each item and which items you need to focus on. Having this kind of data is a solid negotiating tool.

Portal for suppliers to extract invoices.

Accounts payable automation improves efficiencies thereby helping finance scale and adapt to their business changing needs. Using a suppliers’ portal reduces supplier payment frictions since these are web interfaces for collecting and displaying information pertinent to suppliers. This information includes but is not limited to payment histories, Tax ID’s and invoices. Using a suppliers’ portal reduces data entry errors as well as the dependencies on the accounts payable team. Where a supplier payment system is also a part of the supplier portal, it centralises the supplier management system along with allowing ease of reconciliation and reporting.

Pay invoices of suppliers ahead of time to gain discounts.

Reducing the cost of sales is a sure shot way to increase the profits from your eCommerce business and paying invoices ahead of time to gain a discount helps you achieve that. If your supplier doesn’t offer you any benefits for advance payments, you could work on striking a deal with your supplier’s competitors to get a better rate. While it is obvious that to avail of this benefit, you need to close your own cash flow gaps and increase your own working capital, any gaps in the cash flow can be fixed by using tools such as credit cards, bank loans, and capital advance for eCommerce or marketplace sellers.

By understanding these areas and how they impact your eCommerce business, you can make the best decision about managing the bookkeeping of your eCommerce business and find the bookkeeping software or service that’s right for your business.