Running an online business comes with its own set of unique challenges. One of the biggest hurdles? Managing the financial side of the company.
From cash flow fluctuations to multi-state sales tax laws, online businessowners must have the accounting strategies in place to navigate daily operations with confidence.
Here are six best practices to ensure your online business is positioned for sustainable success:
- Monitor your bank accounts and cash flow. Like any business, first and foremost you need to keep a close eye on your bank account, making sure you’re not overspending or simply spending money you don’t have. This proactive measure allows you to quickly identify any discrepancies or errors, and pinpoint areas of your business that may need additional attention, so you can plan for potential changes to your finances. Online businesses should have a system in place for tracking all income and expenses. This includes recording every sale, subscription payment, advertising cost, software subscription and more. Categorizing transactions properly is key, as it will make tax preparation and financial analysis much easier down the line.
- Leverage accounting software. Investing in a robust accounting software solution is essential for online businesses. Popular desktop options like QuickBooks, Xero and FreshBooks can automate many time-consuming tasks like invoicing, expense tracking and financial reporting. This time saver also helps maintain accurate documentation when it’s time to prepare your tax returns.
- Utilize cloud-based tools. You may also consider cloud-based accounting software to access your financial data from anywhere, collaborate with your tax professional and take advantage of features like automated backups and real-time reporting. The rise of cloud-based accounting, invoicing and productivity tools has been a game-changer for online businesses, allowing for real-time financial visibility, remote collaboration and automatic data backups — all crucial for managing an online operation.
- Manage sales tax compliance. Online businesses must navigate different tax rates across states, counties and cities, as well as varying product categorizations and exemptions. Depending on the states and countries in which your online business operates, you may be required to collect and remit sales tax. Proper sales tax management is not just about collecting the right amount — it’s about maintaining your business’s reputation, avoiding costly penalties and achieving sustainable growth. Regular review and updates of your sales tax compliance processes can keep your business current with changing regulations while maintaining proficient operations.
- Prepare for quarterly tax payments. Unlike traditional businesses that make annual tax payments, online entrepreneurs often need to make quarterly estimated tax payments to the IRS. This includes self-employment tax, as well as income tax. Making timely quarterly payments helps you stay on top of your tax liability and avoid penalties, and demonstrates to authorities that you’re a responsible, compliant business owner.
- Document everything. When transactions happen at the click of a button, meticulous record-keeping is a critical task. Online business owners should keep detailed records of all financial transactions, bank statements, receipts, invoices and other documentation. This will not only help with tax preparation and help reduce the likelihood of financial errors, but it also provides an ironclad paper trail if your business must undergo audit or other financial review.
With the right systems and mindset in place, there’s no limit to what your online business can accomplish. At Magone & Company, we can work together to ensure the financial side of your operations runs efficiently, while maintaining good standing with the IRS. Reach out to us today at (973) 301-2300.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.