Did you know that Canada’s anti-spam legislation charges a fine of up to C$10 million per violation?
This means that if your business commits any type of illegal or irresponsible act, you’ll be charged heavy fines. Poor bookkeeping for e-commerce stores also counts as a violation of financial laws and policies. E-commerce businesses are gaining popularity and reliability throughout the globe. While effective bookkeeping for e-commerce businesses is important for financial stability and growth, many e-commerce store owners in Canada struggle to manage their books efficiently. They make common mistakes that do not even seem to be significant. However, they turn out to be a major e-commerce bookkeeping penalty.
If you are one of those business owners, this blog is for you!
We have compiled a list of 7 common mistakes e-commerce business owners make with their bookkeeping and their solutions as well.
- Mixing personal and business finances:
It has been observed that a lot of small business owners in Canada use the same account for their personal as well as business finances. This is where poor bookkeeping for e-commerce businesses comes into play. It leads to great confusion, especially during the tax season.
Solution:
From the very beginning of your business, we recommend you use a separate dedicated account for your business transactions. It will simplify and make it easy to report bookkeeping for your e-commerce store.
- Ignoring sales tax compliance:
If you as an e-commerce business owner fail to properly collect and remit sales tax, it will lead you to huge penalties and fines based on the Canada Revenue Agency’s legal compliance requirements.
Solution:
In order to avoid such a situation, we recommend you stay vigilant with your province’s legal compliance requirements. As every province of Canada has its own legal requirements and tax standards, it’s better to stay updated. Consider using accounting software personalized to e-commerce set up bookkeeping process to automate tax calculations.
- Not tracking inventory correctly:
When was the last time you tracked your inventory? Weeks ago? Months ago??
When your tracking is not accurately up-to-date, you can make errors in the financial reporting of your business. This will lead to false/inaccurate data leading to penalties.
Solution:
To avoid such a situation, invest in software tools that pair your inventory tracking within your e-commerce bookkeeping system. In this way, you will be updated from time to time about low stocks, overall purchases, refunds, etc.
- Improper categorization of expenses:
Categorization of expenses means the types of expenses your business comes across and how you organize them. For instance, if you own a journal-making small business in Canada, your expenses will include paper sourcing, designing costs, printing costs, shipping expenses, etc.
If these costs get all piled up and just mixed together, you will fail to analyze where most of your expenses go and you will end up with confused bookkeeping for e-commerce business.
Solution:
We recommend you set up clear categories for your bookkeeping for small e-commerce businesses. There are many accounting tools that offer pre-configured categories specifically for e-commerce.
- Overlooking shipping costs:
If you operate an e-commerce business, it means that your business can reach a global audience. It boils up to the fact that if you offer worldwide or even national shipping, it will cost you especially along with the taxes (incase of international shipping).
Not factoring in shipping expenses leads to inaccurate profit margins.
Solution:
To avoid such a situation and an unexpected setback in your profit margin, include shipping costs in your expense tracking as part of your best e-commerce bookkeeping practices. Moreover, you can use integrated software to calculate total shipping expenses automatically.
- Inadequate record keeping for dropshipping:
Dropshipping is a type of business in which the seller accepts the orders of customers without keeping the stock in hand. While bookkeeping for dropshipping might not seem an interesting idea, business owners often overlook the complexity of tracking supplier payments and customer receipts. It eventually leads to poor e-commerce set up bookkeeping.
Solution:
If you want to ensure effective bookkeeping for an e-commerce store, invest in high-quality accounting software tools. These tools allow you to keep records of all supplier payments, inventory costs, and sales receipts as bookkeeping for e-commerce businesses.
- Underestimating the value of professional help:
A lot of people try to be the Jack of all but happen to be the master of none. If you try to solve every problem on your own, it will lead to even more severe issues. This is because some problems require professional assistance.
Effective bookkeeping for e-commerce businesses often requires professional consultancy due to its technical nature and nuances.
Solution:
If you have a proper business going on in Canada, hire a professional accountant or bookkeeper familiar with bookkeeping for e-commerce. It will help you keep accurate records of your business transactions. Furthermore, understanding the cost of bookkeeping services for small businesses and average bookkeeping pricing can help you budget for expert help.
Final Thoughts:
E-commerce setup bookkeeping in Canada doesn’t have to be overwhelming. By avoiding these common mistakes and implementing the solutions provided, you can maintain accurate financial records, ensure compliance, and focus on growing your business. From tracking inventory to mastering tax compliance, the right tools and strategies make all the difference. Take the first step by evaluating your current system and adopting best practices for e-commerce bookkeeping today. Contact us today to enjoy a smooth business finance flow tomorrow!