5 Tips for Keeping Accurate Financial Records While Selling on eBay
As an owner of an e-commerce business, you’re a jack of all trades. Even if you do employ staff, eBay seller accounting falls on your shoulders to keep track of. Keeping accurate financial records is always a top priority to avoid potential liabilities. Inaccurate financial records lead to costly mistakes and penalties, so learning how to navigate the financial side of your business needs to be done early and done right.
eBay has greatly expanded the reach of small businesses, making it possible for savvy individuals to run small businesses directly from their homes until they can scale up. That means there are small, homegrown businesses and larger businesses that have expanded their reach all on the platform and need to keep close track of their transactions. Selling on eBay can create a nice side income or grow to a full-time business, but it comes with the responsibility of keeping accurate financial records. These tips are here to help you keep things organised and running smoothly.
Track All Income and Expenses
Whether you are a sole proprietor or an LLC dealing with your accounting, your eBay business expenses need to be pulled in from only one place. If you are spending money on supplies, inventory, and education with cash or using multiple credit cards, it will be harder to track what is coming in and what is going out.
In the next tip, we’ll elaborate more on why you should separate your bank accounts and credit cards for business and personal use. Even if you do, there’s more to tracking your income and expenses. You should set up a system that organises all of your eBay seller accounting records. Your accounting comes down to organising your income and also all of your expenses.
Income comes in the form of any sales you are making off of eBay or any other online retailer you’re selling through. Expenses come in the form of inventory, the cost of goods or shipping materials, the cost of leasing an office or storage space, and your eBay fees.
At the end of the tax year, you’ll need the amount of money you made to be organised and broken down. You’ll also need your expenses. With both of those broken down, you’ll be able to see your profit, which is what you’ll be paying taxes on.
Separate Bank Accounts and Cards
Set up a separate business account or a personal checking account that is removed from your personal expenses. Don’t commingle your personal and business accounts. One of the keys to keeping accurate financial records is to keep everything separate. If you are making purchases for personal use, only use a credit card that is marked for personal usage. This will help you track your spending.
By setting up a debit or credit card that you only use for business purposes, your accounting for eBay expenses will be clearer. If you are purchasing inventory from another store, such as a thrift store, only use that marked debit or credit card. If you are currently using multiple cards and commingling accounts, create a cut-off date and designate only one account or credit card only for business after that date.
The key is to organise so that at the end of the year or during tax time if there is anything that doesn’t match up, you can have only one place to look. If everything that was an expense went onto one account, then you aren’t making an effort to differentiate what was happening around that time period. This can make your taxes a nightmare.
If you’re an aspiring eBay seller and accounting isn’t your strong suit, don’t feel discouraged. There are simple, effective ways to streamline eBay seller accounting and automate your bookkeeping. Automating your bookkeeping process by using software like Link My Books transforms your eBay payout data from a jumbled uncategorized mess into an organised, readable format.
Your accounting software should allow eBay-Xero integration easily, especially if you’re using other sales channels like Amazon, Shopify, and Etsy. Integrating your eBay seller accounting into one place reduces the chance that you miss something integral to your business or make a mistake with your finances.
If your credit card, bank account, and payment processors are all integrated into one easy bookkeeping system, there’s no need to hunt down information at the end of the year. Instead of setting up spreadsheets or a manual notebook, the program will automatically extract the information into the software. This setup takes only a few minutes of upfront work, but it will save you hours monthly trying to manage an unorganised accounting system.
Receipts and Invoices
If the IRS performs an audit, receipts and invoices will be your biggest protection. Set up a routine to save your receipts and invoices digitally, as well as back them up. Once a month, go through all of the inputs and categorise every receipt you have. Your books are only going to be as good and accurate as the accounts linked to them. If you’re making money, it needs to be put in through your eBay-Xero integration software.
Additionally, it is important to know the VAT threshold (Value Added Tax) and ensure that your business is properly registered with the appropriate government agency. This will help ensure that all your financial transactions comply with tax laws and regulations. Don’t neglect this step.
Records of Sales
Every sales transaction needs to be recorded digitally and backed up, as they’ll go on your 1099-k form. By making a note of every sales transaction digitally, you’ll build an easily accessible record that can be used to fill out the 1099-k form. If you fail to properly record and document sales transactions, you can face significant penalties and fines that could easily destroy the business you’ve worked so hard to build.
The worst thing that can happen is that you aren’t saving appropriately for tax time. At the end of the year, you might have $20,000 in your business account, but if you haven’t practised good bookkeeping skills for your eBay seller accounting records, the amount of taxes you owe could wipe out your savings.
For e-commerce entrepreneurs looking to start a business on eBay, these tips should help you start off on the right foot. The sooner you start keeping track of your business expenses and income in an organised manner, the easier it will be to keep that habit as your business grows. If you haven’t started tracking your money this year, bookkeeping software can get you started sooner rather than later. It’s always better to fix your organisation system before it becomes a problem.