Is it difficult for you to understand the accounting of your business?
You are not sure if your dropshipping store is profitable enough because you have never worried about the accounts?
If you have an online store and you still keep paper and pencil accounting, you should update immediately. And it is that business accounting is one of the most important tasks of any online business. But it is difficult to carry it when you do not have a minimum financial base.
Therefore, in this post, we are going to give you some basic notions about basic accounting so that you can start a profitable business and be able to financially manage your dropshipping store in the most professional way possible.
An introduction intended above all for you to learn basic accounting. With the idea of taking away your fear of numbers and thus making better decisions.
Do you want to learn accounting from scratch? Here you will find a first approach to understanding the key concepts of online accounting.
What is the accounting of a company for
No matter how many sales you generate in your online store. If you do not keep an accounting control of your resale business, things may not go as well as you think.
You need to have a real picture at an economic level about the most important points of your business. Since sales or cash inflows are not valid indicators to know the real situation of a company.
That is why you need to correctly keep the accounting of your company.
Business accounting has the mission of creating a true picture of the economic status of a business. It is fundamentally based on recording all the operations carried out by the company, by the accounting standards in force.
All businesses must carry out accounting according to the same legal criteria. In this way, anyone with a minimum of accounting knowledge. Treasury, banks, commercial register, or a person interested in acquiring your dropshipping store. Can know the financial reality of your company, just by consulting the most important financial statements.
Accounting in a company is necessary for the following reasons:
- So that you have a true picture of the finances of your business: knowing the economic reality of your online store, you will know if you are making money, if you have too many expenses or if your activity is not profitable enough. And in addition, the accounting will also give you an idea about how much money you can earn with an online store.
- To comply with your tax obligations: The Treasury requires all SMEs to keep business accounts. And based on that accounting, the corresponding taxes are paid.
- So that you have a reference on the value of your business: if you need to know how much your online store is worth, the best way to make an assessment is through its accounting. If at any given moment you want to sell your store. Or you want to buy one that is already up and running. You will have to take a look at its book value. This is essential if you are going to buy or sell an online store in online stores such as Exchange Marketplace.
How to keep the accounting of a company step by step
All of these accounting terms are likely to cause you fear or rejection.
You may even think that writing down income and expenses in a notebook – as shopkeepers used to do. Is enough to know if you are making money with your online store. But you have already seen that things are not so simple.
There are two reasons why you should know how to keep a small business accounting, at least at a basic level:
- Due to legal obligation: your company accounts must be submitted annually to the registry and they will also serve as a basis for calculating the taxes that you have to pay. In those cases, the rules established in the General Accounting Plan must be followed.
- For financial reasons: in this article, we are going to give you some basic notions of easy accounting, so that you can do a minimum financial analysis of your online store. Only with reliable accounting data can you make the appropriate strategic decisions. However, if you want to expand your basic knowledge, it is best to turn to a good accounting manual.
Tips for keeping business accounts
It is recommended that you follow these tips so that the accounting control of your business does not take too long:
- Keep all the documentation that you may need: you must keep safe all invoices (purchase and sale), tickets, bank statements, receipts, proof of expenses … This is something basic in the accounting of an SME.
- Keep a regular record of the income and expenses of your online store: you must have controlled the income and expenses to know if things are going well and you have sufficient liquidity. In addition, you should also make a forecast of future expenses and a bank reconciliation that helps you avoid unpaid bills.
- Control the taxation of your online store: conveniently, you anticipate the payments that you will have to make to settle your taxes. To do this, you must have the expiration dates of each tax obligation marked on your agenda.
- Computerize your accounting: today you have countless computer applications to carry out accounting in your company. And if you don’t want to pay the prices for these services. Excel or Google Sheets spreadsheets are perfect for your basic accounting.
Basic documents for your company’s accounting
In case you are autonomous, the law is less demanding than if the legal structure of your electronic commerce is that of a limited or anonymous company.
These are the books that you have to carry if you are self-employed :
- Record book of issued invoices: in which the data of the invoices that you are issuing are recorded, following a consecutive numbering.
- Sales and income book: this book is mandatory for those self-employed who pay by simplified direct estimation. It has to reflect the sales made by invoice, plus the rest of the money inflows, even those generated by your passive income.
- Record book of received invoices: in this document you have to record all the invoices that you have received for purchases related to your activity.
- Investment property registry book: this must include the property that you have bought for the development of your activity for more than one year, for an amount without VAT of more than 3,000 euros.
- Record book of purchases and expenses: in this book you must reflect all the purchases you have made for your business. And this item includes both purchases with an invoice, as well as expenses with a ticket.
In the case of an SME, business accounting is somewhat more complicated since the usual books for the self-employed must be added the following :
- Daily book: here all the daily operations of your company must be recorded chronologically.
- Inventory book: you will have to reflect the value of the goods and stocks at the end of the year of your online store.
- Annual accounts: the annual accounts must consist of a balance sheet, a profit and loss account, and a report for the year to explain the particularities of those accounts.
Income and expenses: the income statement
One of the most important documents for proper business accounting is the income statement. Also known as the profit and loss account.
This relationship of income and expenses – even in an easy accounting system. Will give you important information about how the management of your business is evolving, through day-to-day operations. It is based on subtracting the total expenses from the income. And the result will inform you about whether you have made or lost money in a certain period.
If —for example— you have an eCommerce where you sell electric toothbrushes. On the one hand, you will have to reflect all the income you have had from toothbrush sales. In addition to that, you will have to account for other lines of business. Such as the sale of toothpaste tubes, conventional brushes, or Dental irrigators.
And if in addition to toothbrushes, do affiliate marketing or advertising Google Adsense put into the post of your blog, you must then include the income of these items.
Once you have reflected all the income, it is time to get with the expenses. In that case, it is best to group them by concepts. Following the usual structure of basic accounting in Spain, you can divide expenses into the following items:
- Purchases: All purchases of raw materials or products that you have to make to continue with the activity of your online store are recorded here. In the case of the sale of electric toothbrushes. You must include the costs that you pay to your supplier for the toothbrushes that you sell in your e-commerce.
- Personnel expenses: if you have employees, here you must indicate the salary you pay them and the Social Security costs associated with those payrolls. You will also have to reflect in this item your salary and your corresponding self-employed quotas.
- Indirect expenses: here you must reflect other expenses necessary for your activity, such as advertising on Facebook, SEO positioning, training, software licenses, domain, hosting, the electricity you consume, the rent of your office … online store must have perfectly controlled all costs. In the case of the electric toothbrush store in the previous example. Another important item would be the logistics and shipping costs of the products to the end customer.
With all this data we will obtain the operating result. Which is nothing other than the difference between the total value of your sales and the costs associated with them.
With the operating result. You will have a first X-ray that will show you if you are making or losing money with your store. And in case you are losing money, you can always ignore these amazing ways to earn extra money.
But it is possible that at the operational level you make money. And then end up losing those profits by adding the following games.
The income statement has to analyze other realities of your business. Among them, one of the most important comes from the hand of loans. That is why you also have to reflect the financial expenses for the return of the letters of a loan (if you had one). Or the contributions you have made from your funds or from a partner who has invested some capital.
And it is also convenient to record the amortizations. Which are the depreciation suffered by certain assets. Such as, for example, a delivery van – due to the passage of time.
All these expenses must be subtracted from the operating income. Only then will you have a more faithful image of the reality of your business.
Even so, there is still a cost to be imputed: that of taxes. On the profits obtained, companies are obliged to pay Corporation Tax . While the self-employed declare their profits in personal income tax.
So what’s left after paying all those expenses is your store’s net profit.
The balance sheet allows you to offer all the basic financial information of your online business at a single glance.
With the balance in hand, you can know how much cash you have in your online store. If you have a lot of debts, or what is the equity of your business.
But keep in mind that the balance sheet does not show you the evolution of your business over time, but rather gives you a clear reference at a specific moment. Therefore, it is normal to review it at the end of the year. To know what the financial and equity structure of your business is like.
Broadly speaking, the balance is articulated in 3 general concepts:
- Assets: here you must count the assets and rights of your company, along with all the items that generate income.
- Liabilities: here are the financial resources obtained by your company for the development of its functions.
- Net worth: the difference between assets and liabilities. It consists of own funds, donations, grants, contributions from partners …
Online accounting: programs to keep the accounting of my company
No matter how hard you work, no matter how good marketing strategies you implement, all those efforts will be useless if you go beyond accounting. Because not keeping the accounts correctly can lead to significant financial consequences (even fines).
If we analyze examples of successful entrepreneurs, in all cases it is found that they use some program to keep the accounts of their business. In this section, we are going to explain which are the most used alternatives.
The most popular online business accounting programs
The offer of software for online accounting is very wide, varied, and to all types of pockets.
These are some of the most famous programs that will help you with the basic accounting of your company:
- Contasol: it is a program to keep the accounts of a business for free. One of its strengths is that it is installed locally on your computer. So you don’t even need to have access to the Internet. It is software-oriented to small companies and freelancers that allows automating a lot of repetitive tasks. In addition, it allows to generate official books and comply with tax obligations on business accounting.
- Anfix: a tool designed to automate as many tasks as possible, so that you don’t have to spend too many hours on accounting. It allows you to generate entries and extract data directly from the invoices received and sent.
- Visionwin : a very intuitive and visually attractive software that allows you to create accounting entries from scanned documents and communicate directly with the Tax Agency to generate returns. An ideal application for SMEs.
- Alegra : A program in the cloud with a large number of functions at the level of billing, cost control, bank account management, bank reconciliation, customer databases, and accounting management. If you want to focus on the financial management of your store, this tool will make things easier for you.
- Sage50cloud : a very complete tool that works directly in the cloud, with which you can work from any device. In addition, it is updated in real-time. It is the best option for SMEs and freelancers who want to have a real-time image of the financial situation.
- EBetterBooks- eBetterBooks is an online accounting and bookkeeping services firm that has been helping a lot of people to ease the tasks of bookkeeping and accounting. They have city-specific Bookkeeping services like Bookkeeping Services Atlanta, Bookkeeping Services Nashville, and Bookkeeping Services New York, and many more
How to keep a business accounting in Excel
Perhaps the paid applications do not meet your expectations. Or you do not directly want to pay the fees for these services.
In that case, you have a free alternative that is very easy to implement: keep your company’s accounting in Excel (or Google Sheets).
The best thing about keeping accounting in Excel for SMEs is that you can do magic things. Nothing that you know a few mathematical formulas, and some other financial functions.
And if you don’t know how to create your custom spreadsheet. You can find many Excel templates on the Internet aimed at accounting for an SME.
If you want to start a new sheet to keep your store’s accounting, we recommend the following:
- Open a sheet for each document: you can follow the legal criteria established in the General Accounting Plan or you can make a more simplified accounting, with the specific items of your business.
- Create a table for the income: here you will enter all the income of your dropshipping store. You can make a record of daily entries or group the income by type. What it is about is that you find the information easily.
- Make another table for expenses: you can divide them by fixed expenses (which are repeated every month) and variable expenses (which occur sporadically).
- Create a simple formula: that helps you subtract total expenses from income, to obtain the operating result.
- Add another column for taxes: it is convenient for you to also reflect the amounts that you are paying to the Treasury, since these items may end up reducing profits.
- Classify the documentation: another tax obligation is to keep a book that records the invoices issued and received. It would not hurt if in some part of your sheet you created this invoice record. So that you have them all identified.
- Inventory: another element that you should include in your Excel sheet is the inventory in which all the stocks that your online store has on a certain date are reflected.
You can create sections to organize your client portfolio, your cash flow, and treasury or a budget for the future. On the other hand, some entrepreneurs add a balance sheet to their spreadsheet, to make that information more accessible.
With this, it is clear that it is feasible to keep basic accounting in Excel free. You just have to know what your accounting goals are and how to implement your documents.