Your e-commerce business is taking off just as you hoped. You’ve got buyers. Money is coming in. There is a great demand for your product. Now, what? How do you build on this momentum?
Adventures in E-Commerce: Stay Ahead of the Competition with these Financial Strategies
Surviving in the highly competitive world of e-commerce requires more than the everyday entrepreneurial spirit. What you don’t know about maintaining your e-commerce business can impact growth long-term. Here are five tips from the team at Rektio Accounting to help your e-commerce business stay ahead of the pack:
Know your true gross margin
Your gross margin gives you the percentage of revenue after the cost of product. Knowing the costs associated with the sale of your product (fulfillment, shipping, packaging, etc.) is critical to the long-term success of your e-commerce business. You have to keep track of gross margin to control cost and keep your e-commerce business on track. The appropriate software can help you manage true gross margin.
Keep financials accurate (Cash vs Accrual)
This is the only way to get the revenue and cost of goods sold organized in a way to see true profitability and make educated business decisions. The Statement of Cash flows can be used to keep cash in check. Cash basis will greatly skew your profitability based on when you purchase inventory. See the diagram below:
If you are not using Accrual you really have no idea how profitable you are.
– Almost all e-commerce companies will need to treat inventory on an accrual basis for tax purposes.
Maintain up-to-date financials
Up-to-date financials are your scoreboard for success. If there isn’t a clear picture of how your e-commerce business is doing financially, how do you know if you’re making money? Keeping your financials current helps you build on positive trends and correct negative ones.
Set goals for your business
The most successful businesses always have a plan. Develop a framework for what you want your business to look like and have a clear strategy to achieve your goals. As your e-commerce business grows, always update your strategy to prepare for long-term success.
Connect with the team at Rektio Accounting for your e-commerce questions.