The bookkeeping for an online business is a problem many starting e-commerce entrepreneurs struggle with. Moreover, your national tax agency will demand an accounting record, which makes it seem even harder. In fact it is not so hard, and what is more: you can even save money by maintaining a good accounting record, indeed, even earn money with it!
What does the tax agency need to know?
For most tax agencies it is enough to let them know how much you sold and how much you invested. They also want information on the VAT.
So in fact it is not difficult. You can record everything in Excel. Make a tab with procurement and sales and a tab with the differences between both. Save some time by using some formulas which count the VAT automatically for you.
Put the invoices in a folder (in the right order) and you already have the basic administration you need. Different tax agencies require you to keep all data for a minimum of a certain amount of years (7 years in the Netherlands, but this may be different in your country).
What we do in my company is scanning all invoices and keep them digitally (in the cloud). This allows me to access my administration from wherever I am.
The Use of Accounting Software
Accounting software does the same as what I described above. The advantage of accounting software is that it gives more possibilities to automatize processes. You don’t have to repeat many actions, which saves you time. Besides, these programs give you more statistics than an Excel sheet.
These are the most important reasons to buy accounting software. In an online store it is all about statistics and speed. If you have accurate data, and when you have them earlier, you can more quickly respond to any market changes.
Accounting software is moreover very handy to automatise everything. Maintaining accounting records is a dull job. Using a software package costs a couple hours more work during the first weeks only – everything is new for you, they use vague terms and are sometimes complexly structured. But once you understand how it works it saves you a lot of time and work.
Excel or accounting software?
When you are still in the experimental phase with your online store, an excel document can do the job for you just fine. It is free, you still have the overview; the tax agency is fine with it.
When you are really ready to generate sales, however, then I recommend you to buy accounting software. The time you save is totally worth it!
Use an online accounting solution. This allows you to access your accounting records from anywhere. You can also give your book-keeper or accountant access to these online records.
A bookkeeper or accountant?
If you are not a financial genius and have never heard about accounting books, ledgers and depreciation before, a bookkeeper can save you a lot of money. Of course a bookkeepper doesn’t offer his/her services for free but s/he can address issues that you otherwise would have done inefficiently, unnecessarily or even incorrectly.
To save money I advise you to only hire a bookkeeper or accountant when you left the experimental phase behind you.
To save extra money it is best to enter the invoice data yourself. An hourly wage of a bookkeeper can be fairly high. You enter the invoices in the accounting software and the bookkeeper or accountant checks them and fills out the tax return form for you. Make clear agreements with the bookkeeper/accountant, to avoid receiving unexpected invoices.
Difference between bookkeeper and accountant: Bookkeepers don’t need to have certain diplomas and certifications, while the accountant does have them. With an accountant you can be sure s/he knows the tax system and accounting rules. An accountant is often more expensive than a bookkeeper.
Don’t forget that your are ultimately responsible! If the bookkeeper or accountant make a mess of it, you are still liable. It is wise, to continue regularly checking the accounting books yourself.
Every year small businesses go bankrupt because they didn’t take the tax into account.
Don’t forget to reserve some money throughout the year to pay for the tax.