February 22, 2023
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Now that you have taken a leap of faith and launched a new business, it is time to take care of the receipts and paperwork. Fortunately, just a few quick basic tips and pointers can transform your accounting endeavours and help to grow your Shopify store.
Tax rates are always set up automatically for convenience when you launch a Shopify store depending on the countries you ship to and your work address. This is fine in the short term, but you will need to ensure these rates are relevant and up-to-date as you expand your business. Online websites can be accessed by customers across the globe, so you will have to decide on the scope of your shipment plans and set up a tax rate for each of these countries accordingly. You will also need to apply certain tax rates to your products, collections and services, and be aware of exceptions for each of these. For any tax exemptions such as VAT or state tax, applying a tax override is the quickest and easiest method. To find out how exactly tax rates should be applied, contact a local taxing authority.
Shopify has a range of built-in apps that can be integrated within your store for accounting needs. These apps save time and make the whole process of accounting more intuitive and easier to track. For example, QuickBooks Online Integration exports sales automatically and enables payouts and deposits to recorded directly into a bank account, which reduces the need for time-consuming manual data entry. Integration is the best way to keep on top of your accounting activities as it brings every in-store transaction together via one or two simple hubs. You can even create a staff account for a book-keeper or accountant so they can access reports and information.
Tracking cash flow becomes a simple process when you sync accounting software with the Shopify store. You will be able to generate a sales tax report that details just how much tax you have collected and what is owed and get a snapshot of your entire inventory via an inventory valuation report. The latter can play a key role in optimising inventory management, as well as allow you to answer important questions about the value of your stock, identify any slow moving items and streamline cash flow in order to support your growth plans. A cash account report can also be generated to compare with bank statements so you can identify unaccounted money and any other discrepancies.
Establishing a robust accounting infrastructure for your Shopify store is great for business, but you also need to know how profitable you are. This is where profit and loss reports come in. They will outline all of your major costs, margins and revenues and are a key final component in the accounting jigsaw. The first figure you need to calculate is cost of goods sold (COGS), which is defined as the expenses that come directly from the products or services you sell. A common mistake when calculating COGS is to assume that it is equal to the invoices you have already received from clients during the financial year. Basically, cost of goods sold is calculated by adding the value of your opening inventory and purchases then subtracting the ending inventory. This basic formula can be completed using accounting software.
You also want to find out your gross margin and net profit for the year. Gross margin, which is important as it will determine your pricing flexibility and promotion campaign, can be calculated by subtracting sales from your cost of goods sold. This figure only accounts for direct product costs. Finally, round out your profit reports by calculating net profit. This figure is what you will have left after paying all expenses including office supplies, lighting, heating and advertising. It is another simple sum and involves subtracting operating expenses from gross margin.
You will need to aware of the annual tax deadlines and prepare accordingly for this busy time of the year. In the UK, there are several important dates for individual and corporate tax returns. Private limited companies are required to prepare full statutory annual accounts and a company tax return and file them with HM Revenue and Customs (HMRC) before the deadline, which comes around nine months after the financial year ends for enterprises. Individual tax returns for the self-employed and entrepreneurs are subject to two key dates - one in October for paper return deadlines and another in late January for online tax returns. This procedure is all part of accounting success. Paying attention to all of the methods listed here can transform your tax activities and give you the financial freedom to grow your Shopify store as you see fit.
