eCommerce businesses operate using a unique model. However, online businesses must still ensure regulatory compliance and maintain accurate records, just like any other financial organisation.
But compliance for eCommerce businesses and maintaining records is about more than just avoiding penalties – it’s about reducing your tax liabilities, raising capital and ensuring smooth operations.
Required records for eCommerce businesses
eCommerce businesses in the UK are required to maintain specific records to comply with legal and tax obligations. Here are the primary records you must keep:
- Business expenses: Costs incurred in the day-to-day running of your business (while this is required, it also helps you when offsetting expenses against your profit).
- Accounts receivable/payable: Accounts receivable are the sum of your invoices you’ve sent but haven’t received payment for. Accounts payable is the money you owe to suppliers/vendors.
- Customer list: Any and all eCommerce merchant customer and subscriber lists.
- Vendor list: A list of selected or contracted suppliers for your business.
- Receipts: These should record the timing, cost and location of a transaction.
- Invoices: These record transactions between buyers and sellers.
- Bank statements: These provide a summary position of a bank account at a point in time.
This is by no means a comprehensive list of the records you need/should keep when running an eCommerce business.
Why is it important to keep accounting records?
Record-keeping is essential for eCommerce business. Let’s take a look at why.
Avoiding penalties
Regulatory compliance is essential to avoid penalties and legal issues. A common reason for failing to meet these duties is failing to maintain accurate records: not only does accuracy mean your statements and tax returns will be correct the first time round, but it also means you have reliable evidence you can hand over to the authorities if you are ever audited by HMRC.
Reducing tax liabilities
By keeping precise and up-to-date accounting records, you will be able to identify and claim tax deductions available to you much more easily. Quite simply, you might not be able to prove your eligibility if you don’t have accurate records – costing you precious tax deductions.
Raising capital
If you’re looking to expand, you’ll need capital; if you need outside funding, you’ll need accurate financial records, as investors and lenders will not take you seriously if you can’t show that your business operates in a way that will allow them to get their money back. By failing to keep proper records, you may therefore end up borrowing on poor terms – or not at all.
Ensuring smooth operations
Accurate records are vital for efficient business operations. They help you track inventory, manage cash flow, and make informed decisions. In turn, that can facilitate business improvement and growth.
Building trust with customers
Transparency and reliability are key to building trust with customers. Proper record-keeping and compliance with regulations demonstrate your commitment to ethical business practices. This builds customer confidence and loyalty, which are crucial for long-term success.
Best practices for maintaining accurate financial records
Record-keeping doesn’t have to be stressful or difficult. Here’s what you can do to streamline the experience:
- Use accounting software: Invest in reliable accounting software to automate record-keeping, track transactions, and generate financial reports. This type of software is also good for backing up your financial data. Software solutions include QuickBooks, Xero, and Sage.
- Regularly reconcile accounts: Regularly reconcile your bank statements with your financial records to ensure accuracy. This can help identify discrepancies early and prevents errors from accumulating.
- Implement internal controls: This includes separating financial duties among different employees to reduce the risk of fraud, conducting regular audits, and setting up approval processes for significant transactions.
- Stay updated on regulatory changes: Regulations often change, and it’s essential to stay informed about any updates that might affect your business. Subscribe to industry newsletters, join relevant business associations, and consult with legal and financial experts regularly.
- Get help from an accountant: An accountant can provide expert advice, ensure your records are accurate, help you stay compliant with regulations, and assist in financial planning and analysis. Their expertise can be invaluable in maintaining the financial health of your business.
Need help with your record-keeping? We do a lot of work on compliance for eCommerce businesses and are certain we can help you too. Contact us today.