10 Key Financial Metrics and KPIs for eCommerce Business Owners

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Financial Metrics and KPIs for eCommerce Business Owners

Running an eCommerce store is an incredibly challenging venture. You must monitor sales, oversee the latest marketing efforts, and make sure your team has the tools they need to perform at peak levels. 

In order to effectively accomplish all of these various tasks, you must become an expert at eCommerce bookkeeping.

Put simply, eCommerce bookkeeping refers to the process of tracking various financial metrics that impact the success of your business. Without a strong understanding of these indicators, effectively managing your online store will be nearly impossible.

With that in mind, the experts at Visory have created this helpful guide. Our team specialises in online bookkeeping services that help eCommerce sites track essential data.

Below, we’ll outline the ten key eCommerce financial metrics that you should be tracking. 

How to Measure eCommerce Success

If you have been searching for a way to quantify your eCommerce success, online bookkeeping is the answer. It is important to thoroughly track relevant data about your business’ performance and sales. Each category of data is known as a key performance indicator (KPI).

With modern software, you can collect information on just about any metric imaginable. However, not all eCommerce financial metrics give accurate insights into your business. If you pay too much attention to the wrong KPIs, then you will have an incomplete picture of your store’s overall health.

Many eCommerce stores opt to use third-party eCommerce bookkeeping services. These firms specialise in monitoring KPIs and compiling relevant data for your business. They can provide you with regular reports on your business performance. You can then use this information to detect trends, refine your business model, and generate more revenue.

How often should you check your eCommerce financial metrics?

 This depends on a few factors. 

For instance, if you have just switched to a new page theme, then you should check your metrics each week. This is because a new theme can drastically impact the way consumers interact with your content. Your new theme may lead to changes in traffic volume or cart abandonment rates.

More established eCommerce stores may only need to check eCommerce financial metrics bi-weekly or monthly. There is no one-size-fits-all answer. The best solution will depend on your business’ current health and growth projections.

Metrics

Now that we have covered online bookkeeping services and how often you should check your KPIs, let’s dive into the list. Our top ten eCommerce financial metrics include:

1.   Revenue

Our first pick is pretty straightforward. Every business owner actively tracks their overall revenue (even those who are not very interested in analysing data).

However, revenue gives a very narrow view of an eCommerce store’s performance. Having high top-line revenue is great. But it is a useless statistic unless it’s paired with other eCommerce financial metrics. 

2.   Profit

Profit gives a much better picture of your eCommerce store’s health and performance. If your revenue is rising, but your total income is not, it is likely because you are leaking money in another category. This inconsistency may be due to unusually high operating expenses or disproportionate acquisition costs.

When you’re calculating profits, make sure to account for all expenses. We suggest monitoring profits weekly, especially when your business is young. That way, you can continually look for ways to reduce expenses and improve profitability.

3.   Average Order Value (AOV)

Average order value is one of the best eCommerce financial metrics for gauging customer loyalty and interest in your products. The AOV refers to how much the average customer is purchasing each time they checkout.

Driving up your AOV is a simple, but effective alternative to generating new site traffic. There are several great ways to boost AOV, such as:

  • Rewards programs
  • Selling bundled items
  • Upselling with add-ons at checkout
  • Mix-and-match deals

If you find that your AOV is low, using the techniques above can incentivise consumers to buy your products in larger quantities.

4.   Customer Lifetime Value (CLV)

Most of the eCommerce financial metrics on our list are great for just about any business. However, this next one is most suitable for established online stores with a strong customer base. 

CLV refers to the total amount that a consumer spends at your store throughout their entire “lifecycle.” The CLV will vary greatly, depending on what industry you are in.

eCommerce stores that sell consumables and health products may have customer lifecycles of five years or more. On the other hand, a business that sells specialty automotive parts may have extremely short customer lifecycles.

5.   eCommerce Conversion Rate (CVR)

Ever wondered how many visitors to your site are actually making a purchase? If so, then you need to be tracking your eCommerce conversion rate (CVR). 

Like most eCommerce stores, you probably get a lot of passive traffic. We are referring to the customers that “browse” your site for 30 minutes to an hour, only to leave empty-handed. That is okay because some of these consumers will likely return and make a purchase at a later date.

Still, it is important that your business has a healthy CVR if you want to remain profitable. We consider a CVR of about 5% to be a healthy start. 

If your CVR is below this baseline, then it is time to make some improvements. Even a small rise to your CVR can translate to a huge increase in profits.

For example, let’s say that your site earns 500 visitors per day. A CVR of 3% means that only 15 people are making a purchase. By increasing your CVR to 5%, your business will facilitate 25 purchases per day. If each client is spending $100, that is a revenue increase of $1,000 daily! 

6.   Customer Acquisition Cost (CAC)

Many new entrepreneurs tend to overlook a few vital eCommerce financial metrics. CACis definitely one of them. CAC is a pretty simple KPI at face value. Low CAC is great for profits. 

Your CAC should be much lower than your revenue. Let’s say you are spending $20 AUD to acquire each customer. If the average consumer is buying $100 worth of goods, then your CAC ratio is good. However, a CAC that is nearly even with or higher than a consumer’s average purchase amount, could put your business in trouble!

7.   Return Rate

In addition to watching your CAC, you need to track your return rate. If you are processing lots of exchanges, chargebacks, and refunds every month, your profits will suffer. Processing returns are a real pain for your service staff to deal with, too! 

Refund rates vary greatly by business type. When you first begin tracking eCommerce financial metrics, look for comparable stats within your same industry. If you sell apparel and your top competitors have a refund rate of 5%, try to keep your numbers below that level. If your rate is higher, you also need to look at the reasons why. Is it quality, change of mind, wrong product?’

8.   Cart Abandonment Rate

Modern eCommerce software allows business owners to track cart abandonment rates. This occurs when consumers put items in their online cart and leave your store without completing their purchase.

While a high cart abandonment rate may be a bit concerning, it also presents an opportunity. If consumers are loading their carts up with your products, they have a high interest in making a purchase. You may just need to give them a little extra incentive to follow through.

We recommend implementing an automated email campaign. This strategy will target consumers that abandon their carts. You can send them encouraging messages that will prompt them to complete their purchase. 

If you really want to sweeten the deal, include a digital coupon or shipping discount.

9.   Gross Margin

If you plan to scale your business, then gross margin is one of the most important eCommerce financial metrics to track. 

Gross margin is the profit that you are left with after factoring in the cost of goods sold. Unlike some other metrics, gross margin accounts for the cost of acquiring inventory. 

By examining gross margin, you can determine whether your current level of growth is sustainable. Make sure that you have strong margins before you attempt to scale your business. Otherwise, you may find that you do not have the funds needed to keep inventory in your warehouse.

10. Traffic Volume

Traffic volume is a broad KPI that refers to how many visitors your site receives. You can break this stat down into smaller metrics, such as bounce rate, time spent on site, and average page views. Each of these KPIs can help you understand exactly when consumers are leaving your website. 

For instance, bounce rate refers to the number of users that navigate to your site and leave before viewing additional pages of content. A high bounce rate may be a sign that your site is not visually appealing enough. It may also indicate that page load times are slow, which quickly discourages potential customers. 

Increasing your site’s traffic volume is an essential part of growing your eCommerce store. You can drive more traffic by leveraging various marketing efforts, including paid ads and search engine optimization (SEO) practices.

Closing

That rounds out our list of the top ten eCommerce financial metrics that you should be tracking. 

Now that you know which data to monitor, it is time to put these numbers to use. Leveraging these KPIs can reveal how well your business is really performing. You will be able to identify what you are doing well and which areas need to be improved upon.

If you are still unsure how to begin tracking your eCommerce financial metrics, contact the team at Visory. We offer our clients exceptional online bookkeeping services at affordable prices. 

Our team will provide you with detailed reports on the health of your online store and regularly check your key metrics. This means that you will have more time to focus on other important tasks, like scaling your business. Supercharge your financial back office with Visory!

Financial Analysis for E-Commerce Businesses

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Understanding where your money is coming from and where it’s going is crucial for any business. But financial analysis has a different meaning for online businesses. Why? You have so many more performance indicators to analyse than a brick and mortar business. 

Imagine you have a billboard on the side of a major motorway. If you see an uptick in sales, it’s difficult to link those sales back to the billboard. If you place a Google Ad, however, you can see exactly how many people clicked on it and then made a purchase. More information means more analytics. 

Financial analysis for e-commerce businesses ranges from tracking sales to analysing shipping costs and everything in between. Read on to learn more about eCommerce bookkeeping and more.

What is a financial analysis? 

Financial analysis is the process of evaluating all of your business financial transactions. You can do this for a few purposes. Some of the most common reasons an organisation will initiate a financial analysis include end-of-year reconciliation, determining solvency (do you owe more in debt than you have in assets?), and determining the general stability of the business. 

Financial analysis for e-commerce businesses may also be done to check for inefficiencies in shipping and advertising. A financial analysis can help you plot your future course and create the reports you need to attract investors. 

What are e-commerce KPIs?

There are lots of metrics available for online businesses, otherwise known as measurable components that can indicate success. For e-commerce businesses, these often include things like the number of ad impressions, cart abandonment numbers, and organic traffic. KPIs are key performance indicators — in other words, your most important indicators of success. 

Your financial analysis can reveal how you are performing using KPIs like average size order, profit margins, conversion rates, and new customer orders. 

How to get an overview of your business finances 

Current online bookkeeping starts you off on the right foot — inaccurate books can’t yield accurate analysis. So, make sure you are tracking your general ledger and using double-entry bookkeeping tof each transaction. 

Once you have your bookkeeping for e-commerce transactions in order, you can start figuring out what the numbers mean for your financial health and future. 

Key factors to consider during a financial analysis for e-commerce businesses include:

  • Sales by category: Figure out which of your sales categories and items are most popular. This allows you to make decisions on expanding your most lucrative categories with similar products and services. Likewise, you may want to discontinue your least lucrative products.
  • Average dollar spent per transaction: Are your customers spending just a few dollars per transaction? Determining the average dollar amount spent per sale helps to let you know if your future strategy should include encouraging add-ons and targeting customers with similar products for sale. 
  • Product margins: For e-commerce businesses, the cost of goods sold (COGS) includes things like Google Ad costs, email lists, and shipping. When you subtract your total costs from your revenue, you can determine your profit margin. E-commerce margins can be as high as 6.5%.
  • Shipping: Shipping costs are a part of your overhead that can’t be avoided if you’re selling physical products online. Are you paying too much? Your financial analysis can help to reveal if you’re paying more than average for shipping and handling. If you are, you can either seek shipping alternatives or consider increasing shipping costs for your customers. 
  • Returning customer orders: How many of your sales come from new customers vs. returning customers? Return visitors cost less per transaction, because you don’t need to put out a new ad spend to attract them. If you are only bringing in new customers, you may want to create a new loyalty program to increase retention. 
  • Inventory turnover: Your financial analysis can also reveal if you are managing your inventory in an efficient manner. Higher turnover rates are better, because they can mean you’re selling your items more quickly. This can help to reduce your storage costs and other fees associated with holding on to products (heating, cooling, inventory counts, etc.) 
  • Revenue: Tracking your income, or revenue, lets you know if you’re growing at a steady pace or not. While your revenue doesn’t represent your actual profits, it’s still a good indicator of whether your finances are headed in the right direction.  

Personalised financial advice is more important than ever when it comes to financial analysis for e-commerce. Not all online stores operate on the same margins or have the same needs. Having a dedicated online bookkeeper from Visory, or using CFO services, can help you analyse your financial state and make strategic moves for the future. 

5 Things to Consider When Hiring an eCommerce Bookkeeper

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Running an online store can be just as busy as operating a brick and mortar business. You may only interact virtually with customers, but there is still a tonne of labour that goes into production, shipping, accounting, and more. Doing it alone could make you dizzy. 

One way to ease your burdens and avoid bookkeeping mistakes is by enlisting eCommerce bookkeeping help. Letting a virtual bookkeeper manage your income statements, cash flow statements, financial reports, and other money matters helps to free up time and eliminate stress. But who do you hire? Ask yourself these questions about any potential bookkeeper before you let them help you with your online business. 

What to look for when hiring an eCommerce bookkeeper

Successful eCommerce businesses have a well-defined set of processes, including a bookkeeping system. Failing to set up reliable eCommerce bookkeeping steps could lead to cash flow chaos, payroll shortages, tax penalties, and other problems. A good bookkeeper helps to avoid these pitfalls. An inexperienced bookkeeper may not see them coming. 

Ask these five questions of any eCommerce bookkeeper before you bring them into your team. 

1. Do they know your industry?

General bookkeeping experience is an important quality for any eCommerce bookkeeper. But does your potential bookkeeper know your industry? Imagine you’re a painter with an eCommerce store. Someone who has a decade of experience helping with food-related eCommerce businesses may not be the right choice for you. 

Your overhead costs, shipping needs, product price points, and tax deductions are very specific to your type of sales. Ideally you will find someone who has worked in your industry and understands how to offer meaningful insights. 

2. Are they familiar with eCommerce cost of goods sold (COGS)?

eCommerce bookkeeping requires an understanding of eCommerce (COGS. The COGS for any store includes more than just materials and labour costs. Your total cost per unit also includes things like packaging costs, storage costs, heating/cooling costs, and anything else that it takes to get a unit out your (virtual) door and into customers’ hands. 

A good eCommerce bookkeeper is also knowledgeable about online store inventory management. Do they have a plan for tracking units that may be kept in a warehouse or sent directly from the manufacturer? Brick and mortar stores can do an in-person manual count once a year. What does a potential bookkeeper suggest for your online store? Missing inventory and out-of-stock inventory are a major cause of lost sales for businesses each year. 

3. Do they offer diverse services?

Your ideal eCommerce bookkeeping service can do more than enter numbers into a spreadsheet. Can the bookkeeper you’re about to hire provide meaningful financial reporting? You want a bookkeeper who can identify red flags and help you forecast your future. You want a bookkeeper who will be able to spot missing money and tell you where you are overspending. Ask a potential bookkeeper how they have successfully helped online stores improve their revenue in the past. 

4. Do they know how to help you scale?

You may be a very small enterprise right now. But even if you never become a billion dollar business, you are likely to grow as you find more customers. eCommerce bookkeeping should be able to grow with you. The right bookkeeper for your eCommerce business should post summarised statements and keep your books clean so you scale at the right pace and know when you need more funding. 

5. Do they know your accounting software?

Perhaps most importantly, can your bookkeeper adapt to your accounting software or suggest a better one? Modern bookkeeping and accounting processes require a person to be up to date with the most current versions of cloud-based accounting software. Your general ledger shouldn’t be in a binder!

Ask a potential bookkeeper which version of software they’re most familiar with. Remember that many small business accounting programs limit the number of clients, accounts, and employees you can use before you upgrade to a new software. Look for a bookkeeper who knows when you’re ready to upgrade and can help you transition seamlessly. Finding a bookkeeper to help with your online store is about more than finding the right payroll professional or tax accountant. Leverage a team of eCommerce experts to deliver reporting and insights, forecasting, advice, and help with expanding your business. At Visory, we will pair you with a team of remote bookkeepers who know the needs of eCommerce businesses. Contact us today to see if we can help.

Bookkeeping Guide for eCommerce: What You Need to Know

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Bookkeeping for an eCommerce business has unique challenges. Between tax implications, shipping processes, and website overheads — you need to know your stuff. Frankly, as your organisation grows, it gets harder to do it yourself. 

The best practices for eCommerce bookkeeping will help protect you come tax time, but they also prepare you for seeking investments and more. Here is your guide to bookkeeping for eCommerce organisations. Everything from how to get started to who to ask for help — all in one place!

What you need to start doing bookkeeping for your eCommerce business

If you’re brand new to selling online, there are a few milestones to meet before your organisation can start selling. And we’re not just talking about getting a point of sale system on your website. In order to effectively track your sales, collect the right taxes, and have accurate books, you should also complete these three tasks. 

Get set up for GST

If you think you’ll turn over $75,000 or more annually in Australia or $60,000 or more in New Zealand, you need to be set up to pay goods and services tax (GST). In Australia, it is important that you register for GST within 21 days of passing the threshold. For this reason, it’s often wise to register well in advance if you think it is likely you’ll eventually pass the $75,000 threshold. Not only does registering for GST allow you to add tax to your sales, but it also permits you to claim back GST from the Australian purchases you make from GST-registered businesses.

Create a business bank account

eCommerce business owners should never mix business and personal funds — it’s just too messy. Create a business bank account as soon as you set up an eCommerce store. Your sales should be funneled directly into your organisation’s account for easier bank statement reconciliation. To open a company bank account in Australia, you will need a certificate of registration of a company, an Australian business number, and proof of identity documentation.

Choose an accounting system

Once you have your tax registration in place  and you have a bank account set up, you want to get your eCommerce bookkeeping up and running the right way. The right bookkeeping software allows you to maintain accurate balance sheets, financial statements, payroll reports, and more. You want an accounting software and strategy that can scale with you. Be careful of accounting software that has limits on the number of transactions and customers you can track. This will provide barriers later on. 

Why eCommerce bookkeeping is important

For very small cash businesses, basic bookkeeping might work for the short term. But trust us – tracking expenses and revenue in a spreadsheet is not a good idea for a growing business. eCommerce bookkeeping helps you track many vital processes. 

Whether you hire staff for the back office or enlist virtual bookkeepers, here are some of the things your eCommerce accounting and bookkeeping services will handle. 

  • Managing your eCommerce accounting software. A good bookkeeper will manage your accounting software, such as Xero or MYOB. Robust accounting software can generate essential reports around the clock and help you identify trends in your eCommerce sales. 
  • Paying merchant fees. When a customer uses a credit card to make a purchase on your website, you will incur a merchant fee. This is calculated as a percentage of the sale. By accurately tracking merchant fees in your eCommerce bookkeeping strategy, you can figure out how to adjust pricing as necessary to recoup these fees.  
  • Handling third-party payment tools. To avoid the highest merchant fees, you may want to begin accepting other forms of payment. Adding PayPal, Stripe, eWay, or SecurePay to your website can sometimes lower your fees on domestic charges. 
  • Tracking sales from multiple sources. Obviously you won’t be accepting hard cash over the internet. But you’ll still receive payments from more than one source. Visa, Mastercard, third-party payment tools, gift cards, and other payment sources need to be sorted. Your bookkeeping should be able to track and analyse where your payments are coming from and the implications for cash flow. 
  • Configuring foreign sales conversion rates. eCommerce customers paying in foreign currency can also pose some unique challenges. If you plan to sell internationally, you’ll need an accounting software and/or bookkeeping system that can track conversion rates and help you advertise prices accordingly. You’ll also need to document the conversion rates on foreign purchases your company makes so your bank statement can be reconciled properly. 
  • Collecting and recording shipping fees. eCommerce sales usually involve some sort of shipping. A streamlined bookkeeping service will track your shipping costs. Comparing costs to what you charge for shipping lets you know when and if you need to increase shipping charges to cover your overhead. 
  • Tracking eCommerce inventory. Your eCommerce bookkeeping system is also crucial when it comes to tracking inventory. 
  • Figuring out your cost of goods sold (COGS). The total COGS for your business may be higher than you originally anticipated. Between packaging, advertising, shipping, and other overheads — it costs you more than just materials and labour to move units. Bookkeeping gives you a better picture of what your expenses actually are. 
  • Preparing for investors. If you ever need a business loan or want to take on investors for your eCommerce business, you’ll need accurate books. Anyone considering giving your business cash will want a precise picture of where your finances stand.  

eCommerce bookkeeping best practices

Maintaining e-business books as a business owner is easier if you follow some basic principles. Of course, you want to stay current and avoid using catch-up bookkeeping as your go-to accounting method. And you want to lodge your taxes on time to avoid penalties. There are a few other things to keep in mind. 

Best practices for eCommerce bookkeeping include:

  • Learning the difference between cash vs. accrual accounting. Cash accounting only counts transactions when cash trades hands. Accrual accounting notes a transaction when the service is provided — even if it hasn’t been paid for or received yet. 
  • The cash method works for small businesses, but if you turn over tens of thousands of dollars per year, the accrual method is more appropriate. 
  • Using double-entry bookkeeping. Single-entry bookkeeping only tracks transactions once. With double-entry accounting you’ll catch more mistakes and create stronger efficiencies. 
  • Cloud-based accounting. When you’re doing your business online, it makes sense to keep your bookkeeping online, too. Cloud-based accounting keeps records on hand at any time. 

What to look for in an eCommerce bookkeeping service

Let’s be honest, bookkeeping mistakes can put a handbrake on your entire enterprise. And handling your own books can be too much to handle. Leveraging a bookkeeping service with expertise helps to save the day. 

What do you look for in a bookkeeper? Let’s talk about what they must be able to handle if they’re going to help you thrive. 

A good bookkeeping service can handle multi-channel revenue. Can your current bookkeeper manage the sales from Shopify, Amazon, Etsy, and your own website? You don’t want a service that has limited understanding of the latest sales channels. Can your bookkeeper scale with you? As your organisation grows, it will have more complex financial needs. Your reports and tax lodgements should reflect that. 

Can your bookkeeper provide you with clear, actionable reports? You don’t need a list of transactions with no insights — you also need to know what to do next. A good bookkeeper will forecast the best path toward increased cash flow and debt reduction. 

Speaking of cash flow, can your bookkeeper monitor your cash flow and spot red flags? Can they point out areas of improvement, such as where you can cut back on overheads or reduce materials costs? Improved cash flow gives you more room for expansion and can help you add staff to your growing business. 

Can your bookkeeper handle foreign currency? There are unique conversions and fees associated with international transactions. Not to speak of additional shipping charges. The right bookkeeper for your growing organisation will be able to tackle all of these issues — and anything else that arises. 

The final word on eCommerce bookkeeping

eCommerce accounting and bookkeeping don’t need to keep you up at night. You’ll sleep easier with help from an experienced team who know how to manage multiple payment streams and foreign transactions. 

At Visory, we pair you with bookkeepers who know your industry and can scale with you. You are able to add new members to your bookkeeping team, or scale back down, as needed. Why add a back office staff member when a virtual team can handle your needs without taking up office space?

5 Reasons to Keep Your Bookkeeping Current

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You don’t want to constantly play catch-up bookkeeping. Sure, this method of accounting gets your books up- to-date — but  the goal should be to stay there. Getting behind on the books affects your accounts payable, could lead to tax penalties, and may ultimately cause your business to go under. 

You can’t effectively run a business if you don’t know whether your books are in order. What if you have outstanding payable invoices or you’re not running your payroll tax correctly? You can achieve financial accountability through double-entry bookkeeping, regular reports, and bank reconciliation. But all of this takes time. Keeping your balance sheets and ledger current can be easier when you outsource bookkeeping. 

Reasons to stay current on your books

The implications of incomplete financial records are serious. You may forget who owes money to you, who you owe money to, and lose track of overhead expenses. Many small businesses simply don’t have the time and resources to implement complex accounting systems. It’s easy to understand how accounting mistakes are made. 

Here are five reasons to make sure your books are kept up to date. 

Bookkeeping helps you manage your expenses

Business finances boil down to income and expenses. Every time you write a cheque or process payroll, it needs to be accounted for. Up-to-date bookkeeping helps you manage your expenses and stick to your budget. You won’t blindly overspend again. 

Bookkeeping proves revenue forecast

Do you know how quickly to scale? You may have big dreams about becoming a millionaire overnight, but the reality is that scaling responsibly often takes time. Real-time bookkeeping helps you understand the rate at which your revenue is actually growing. If you outsource bookkeeping to an expert, they can provide an objective assessment of what your current financial forecast looks like. 

Bookkeeping can take the stress out of tax season

Tax penalties for businesses in Australia have been on the increase, While a small business is unlikely to accrue such a massive penalty, lodging your taxes incorrectly can still have financial consequences. In New Zealand, the story is similar. If you pay taxes more than seven days late, you can expect a 4% penalty. Up-to-date books make filing accurate and timely tax returns easier. 

Bookkeeping can help you get investors and loans

Any time you’re asking for money, be it from a private investor or a bank, they will want to see your current books. The financial health of your businesscannot be in question. And if your books have gaps of knowledge or your ledger looks incomplete, you could miss out on critical funds. 

Bookkeeping keeps you prepared for emergencies

If the last few years have taught us anything, it’s that businesses and entire economies can be shifted unexpectedly. An accurate picture of your financial health helps you create contingency plans for anything from natural disasters, to real estate shifts, to pandemics. You can’t plan for the worst if you don’t know where you stand right now. 

Can outsource bookkeeping help?

The benefits of outsourcing your bookkeeping are many and varied. An outsourced bookkeeping service may notbe available in-person, but they can become as familiar to you as in-house staff. In fact, you may come to rely on them for the financial help of your organisation. Here is how:

  • You’ll be matched with an industry expert. A trustworthy outsourced bookkeeping service will pair you with people who know about your industry. Everything from tax implications to growth strategies will be catered to your specific needs. 
  • You can access records at any time. Using outsourced bookkeeping gives you around the clock access to records. You’ll be able to log on and see your general ledger, balance sheets, and bank records without contacting an accountant. 
  • You can grow your team as needed. With outsourced help, you don’t have to hire someone full-time when you’re ready to expand your account management team. You can simply add another bookkeeper to your virtual team for as many hours as are necessary. 

Managing your cash flow, tax lodgements, and payroll becomes overwhelming as your organisation grows. And falling behind on your books is just not an option. Leveraging the help of Visory can make a tonne of difference. Let Visory take over your double-entry bookkeeping, prepare tax returns, and business planning. You can communicate with us at any time and ask all the questions to help your business grow. You’ll never look at outsourcing the same again. 

Time to Reconcile: Importance of Bank Reconciliation and How a Bookkeeper Can Help

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Are you reconciling your bank accounts once per year? This may get you ready for tax time, but annual bank reconciliation is just the beginning. In order to grow your business at a responsible rate, you need to get a clear picture of your cash flow, understand the types of fees you’re paying, and catch fraud before it goes too far to fix. 

When you’re doing catch-up bookkeeping instead of regularly reconciling your books, you may think you’re in better shape than you are. Imagine hiring a new full-time staff member only to learn you can’t afford them? Learn more about the importance of regular bank reconciliation and when to call in a bookkeeper. 

What is bank reconciliation?

Reconciling your bank records means comparing what the bank has on record with your own internal reports. If you have a bank feed with an accounting service, you still need to reconcile your bank feed with your official bank statement. 

A lot of transactions are included in a reconciliation. According to The Institute of Certified Bookkeepers in Australia, you should periodically reconcile your internal records against the records of:

  • Banks 
  • Credit Cards
  • Barter Cards
  • Bank Loans
  • Petty Cash
  • Cash Drawer
  • PayPal

Why do you need to reconcile your bank accounts?

Your accounting records are only as useful as they are accurate. Sounds obvious, right? You’d be surprised how much missed bank fees and other small discrepancies add up and how many business owners may wave them off as unimportant. In reality, bank reconciliation can save you thousands of dollars per year. Combined with double-entry bookkeeping, which creates two records of every transaction, regular reconciliation keeps your books tidy. 

Here are some of the reasons reconciling your bank statements is so important. 

A bookkeeper looks over a bank reconciliation statement.

Catching Discrepancies

Your internal ledger says you spent $10,000 last month, but your bank statement says you paid fees totalling $500. This difference may seem small in the grand scheme of things, but if you make the same mistake each month — you’ll be off by $6,000 by the end of the year! Discrepancies can result from honest human error or fraud. If someone is skimming money from one of your accounts, you’ll notice it faster with a monthly reconciliation process. 

Tracking Cash Flow

Reconciling accounts each month gives an accurate picture of the amount of cash flowing in and out of your accounts. You’ll see if you’re actually in the black — or just thought you were. You can also reconcile your credit card receivables as a part of this process to make sure that everything has cleared that was supposed to. 

Managing Accounts Receivable 

One major source of reconciliation discrepancies is a cheque that did not clear because the account had insufficient funds. Checking your accounts receivable as a matter of routine allows you to catch these problems so you can either rebill the vendor or customer or write off the discrepancy as a bad debt. 

Making Sure Payable Transactions Have Posted

Comparing your statement balance to your internal records often also lets you confirm that important transactions have posted to your account. It would be a shame to forget that you still have an outstanding cheque out in the world — you could easily overspend on an account when it finally posts. 

Finding Systemic Issues

If you notice a pattern of individual errors or discrepancies, you may also catch a structural issue within your accounting system. Perhaps you need to change payment services or use a different bookkeeper if the same issues arise time and again. 

How often should I reconcile my bank statements?

The Australian government only recommends that you reconcile accounts “regularly,” which is a bit vague. Ideally, you should reconcile your accounts each time you receive a bank statement. If your accounts bill on different schedules, an end-of-month reconciliation is a good habit to get into. 

How can a bookkeeping service help with bank reconciliation?

An outsourced bookkeeping service can provide reporting and insights that your current staff aren’t able to keep up with. Partners like Visory provide an outside set of eyes to give your company an objective view of your financial affairs while saving you time and internal resources. Your team gets to use the insights and reporting to make smart decisions without having to do any of the work to create them. We call an outsourced bookkeeping service a win-win. 

5 Reasons Why Your Startup Should Use an Outsourced Bookkeeping Service

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You’ve been doing your own books since you opened your business. And you’ve been doing a stand-up job, if you do say so yourself. But this strategy can’t last forever. You’re probably starting to realise that you don’t have the time required to look after your bookkeeping by yourself as your business grows. Not only do you want to be ready for tax season, but you want your books to be in the best shape possible to help with cashflow management and strategic planning. 

The bottom line is your startup needs bookkeeping help once it gets off the ground. If you’re not ready to hire someone full-time, you have two main options. You can hire someone in-house on a part-time basis or use an outsourced bookkeeping service. An outsourced professional gives you full-time access to financial help without having to pay a full-time salary. 

5 Reasons to Use an Outsourced Bookkeeping Service

1. Outsourced bookkeeping helps you optimise your resources

Keeping a general ledger, learning to manage payroll, and preparing financial reports are all time-consuming. These tasks will eventually require a tremendous amount of precious resources (and the people doing them are usually handling other essential business tasks as well). Once you have more than five employees, experience accelerated growth, and/or decide to add extra products, staff, or services—it often makes sense to enlist some bookkeeping expertise. 

An outsourced bookkeeping service can help free up time in your organisation. And more time means more focus on activities that can help you grow, such as marketing, business development, and other essential growth-related activities. 

2. Outsourcing your books makes scaling more realistic

As you grow, deciding to outsource bookkeeping and accounting can help you take on new financial challenges or accounting practices. If you need to hire more full-time staff, for instance, having more bookkeeping help on call means you won’t miss a payroll period. You can also take on additional reports regarding your financial health. These reports, in turn, help you identify areas of potential growth and scale upward at the most advantageous rate. An outsourced expert can also implement double-entry bookkeeping or more complex reporting styles that are required for large companies. 

A startup business has a meeting to discuss finances..

Photo by Cherrydeck

3. Outsourcing your bookkeeping puts you in touch with experts

You know your vision for your business, you know your product or service, and you can recite your elevator pitch on demand. What you may not know is how to implement best practices for bookkeeping in your industry. Many startups are filling a niche category in the market, making your finances all the more unique. A qualified outsourced bookkeeping service does the vetting for you, so you don’t have to worry about enlisting the wrong person. 

An outsourced bookkeeping service can connect you with a financial expert who knows the best way to scale up in your industry, and which government reports you need to lodge at the end of the year. They can create a bookkeeping system that meets all your needs. 

4. Outside help with accounting helps to keep you tax compliant

Small businesses and large businesses have differing tax reporting requirements, depending on their annual income and structure. And it can be difficult to get it right. Some taxes are administered by the Australian Taxation Office or New Zealand’s Department of Inland Revenue, while others depend on the state where you operate. An outsourced bookkeeping expert will best know what reports you are required to lodge and when the deadlines are. 

5. Outsourced bookkeeping services get you ready for investors

Before an outside investor takes a chance on becoming a stakeholder, they will want to see detailed financial information. Everything from your current debts to your cash flow can help investors make an informed decision. Outsourced bookkeepers ensure your books are up to par and can take care of the reporting and insights needed to be investor ready. 

Many startups fail within the first five years of operation. If you want to make it, accurate bookkeeping is an essential undertaking. An outsourced bookkeeping service helps you connect with an industry expert, scale responsibly, remain tax compliant, and more. At Visory, we handle accounting needs for businesses that are growing from a small business to a more thriving enterprise. You will have full access to statements and reports around the clock. You can even choose a dedicated bookkeeper who will become a trusted member of your team. In short, Visory is your secret weapon to business growth. 

Bookkeeping Basics: The types of bookkeeping accounts every business owner should know

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As a business owner, you’re the top expert on your company’s products and services. An expert on controlling a balance sheet? Umm… not so much. Yet, knowing the back office like the back of your hand is essential to running a thriving organisation. Understanding types of bookkeeping accounts and tax timetables help you better plan for business growth. 

Is the language of the back office a bit daunting? Don’t be scared off. Learn the basics of bookkeeping terms and various methods of accounting. Once you better understand your accounting practices, you can become an expert on your business’s financial health.  

Basics of bookkeeping

Even creative executives should know basic practices. Budgets for social media, marketing, and advertising will be informed by available funds, after all! You’ll hear these fundamental buzzwords in any bookkeeping meeting worth its salt. Here is what they mean. 

  • Accounts payable – Your accounts payable includes any amounts owed to a supplier or other business. If you have received a good or service but not yet paid for it, your supplier’s invoice goes into your accounts payable. 
  • Accounts receivable – These are invoices that reflect money owed to your business. In short: unpaid bills from customers or clients. 
  • Assets – Assets include a combination of your accounts receivable, property and equipment owned by your company, product inventory, and liquid funds. 
  • Liabilities – Your liabilities combine accounts payable with other debts like bank loans, outstanding payroll, and credit card balances. 
  • Revenue – This term relates specifically to the money your company makes from its goods and services. 
  • Expenses – Your expenses are more than what it costs to run your business and sell your goods and services. This factors in everything from utilities and cleaning costs to salaries and insurance. 

Photo by Mikhail Nilov from Pexels

Types of bookkeeping accounts

There are various types of bookkeeping accounts and ways to calculate your taxable revenue. The way you record transactions and manage debits and credits often varies depending on your organisation’s annual income and the complexity of your expenses. Here are the most common types of accounting any executive needs to be familiar with. 

  • Cash basis accounting – Under this accounting scheme, you only record a transaction when the cash actually trades hands. Cash basis accounting is ideal for small businesses. 
  • Accrual basis accounting – When your business uses accrual basis accounting, you record a transaction when the service is complete — even if you haven’t been paid yet. 
  • Single-entry bookkeeping – In single-entry bookkeeping, you only record each transaction once. For instance, if you make a sale of $100, you only record it as revenue of $100 when using the single-entry system. 
  • Double-entry bookkeeping – When you implement a double-entry bookkeeping system, each transaction is recorded twice. For instance, when you make a sale of $100, you note it once as $100 revenue and once as $100 in lost inventory. Double-entry bookkeeping balances your credits and debits. 

Other bookkeeping terms you need to know

  • Cash flow – Cash basis accounting is the best way to track cash flow accurately, but any accounting scheme must track how much cash is coming in and out of your business. 
  • Cost of goods sold (COGS) – This term relates to the total cost of producing your products, including materials, labour, and other overheads. 
  • Owners’ equity – If you calculate total assets and subtract the total liabilities, you can calculate the value of your ownership. 
  • Balance sheet – A balance sheet lists assets, liabilities, and owner’s equity. It provides a snapshot of your financial health at any time and a look at your net assets.  
  • Manual bookkeeping – Manual bookkeeping are records kept in paper form. The Australian Taxation Office recommends keeping your records for five years. 
  • Cloud bookkeeping – Electronic records are usually produced using bookkeeping software. You’ll also want to keep these records for at least five years. 

Running your business can often remove you from the day-to-day accounting processes of your organisation. But knowing your way around a balance sheet helps you track growth and know when it’s time to scale. When you enlist Visory as a bookkeeping service, you have access to a trusted team of bookkeepers who will do the heavy lifting of record keeping. If you don’t know your way around a general ledger, we’ll show you the way. 

Preparing Your Business for EOFY 2021

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Let’s be honest: Preparing for the end of the financial year (EOFY) makes your brain hurt. Tax time is simply a pain in your you-know-what. Between unexpected tax bills and finding out your books are less organised than you thought—unpleasant surprises seem to be around every corner. Even if all goes well, the process is still laborious. 

EOFY prep can require catch up bookkeeping when you’re not up to date — filling information gaps for your accountant and looking for lost receipts. Switching to real-time bookkeeping and oversight sets you up to have better reporting for FY 22. Good bookkeeping can equal less tax and a smoother compliance process. Visory can help. 

5 ways to prepare your business for EOFY

In Australia, with EOFY  just around the corner, your business has the chance for a fresh start on July 1 each year. Here are five tips for keeping your headaches to a minimum. 

Organise your records

The best way to make EOFY painless is good record keeping. Ideally, you’ll do this throughout the year. However, if you’re scrambling this year because COVID turned some things upside down, it’s not too late to organise your paperwork. Make sure you hit these key points:

  • Write down all due dates. Lodging your tax returns and records late can result in fines or make your taxes incomplete. 
  • Gather receipts. To be prepared for EOFY, you will need everything from sales records, credit card statements, bank statements and receipts. Anything you tracked in accounts payable or accounts receivable will need to be reconciled and reported. 
  • Organise employee records. You’ll also need to find your records for all wages paid and current superannuation details. PAYG payment summaries, too, because these reports must be lodged at the end of the financial year. 
  • Reconcile bank statements. Most banks will provide records of each transaction. Make sure you have a full report for all business bank accounts on hand as you prepare your end of year financial reports. 
  • Balance the general ledger. Has your ledger been kept up to date? This tracks each transaction by category and will inform your available deductions, as well as help to reveal the overall health of your organisation’s finances. It must be up to date by EOFY. 

Plan deductions and concessions

Many businesses reduce their taxes by claiming deductions and concessions. You might be surprised at how many aspects of your business qualify for a deduction — especially for small businesses. Things like office equipment, motor vehicle expenses, rental property costs, and travel expenses are commonly deducted from your assessable income. 

Ensuring your accounting software is up to date and accurate helps you ensure you won’t miss a deduction. Also, if you’re working with a professional, make sure they are working with the latest software and that their personal licence is up to date. 

Make a compliance checklist

EOFY requirements extend beyond lodging your tax returns. In fact, businesses across Australia have unique compliance needs depending on their size, revenue, and entity type. Do any of these compliance requirements apply to your business?

  • Public Sector entities must prepare financial end-of-year statements in accordance with the Public Governance, Performance and Accountability Act 2013. For more information about the standard parameters document and more, check out this list of compliance-related documents for commonwealth entities. 
  • Media holders in Australia with foreign stakeholders must meet very specific compliance reporting. 
  • Most business entities are required to lodge at least some government reports at EOFY. Section 292 of the Corporations Act 2001 (Corporations Act) outlines more specifically what is required of various entities. This includes public entities, all disclosing companies, and some small proprietary companies. 

Write off bad debts

Writing off bad debts (unpaid invoices, for instance) can be considered a tax deduction. Gather all uncollectible invoices and other extensions of credit and have them ready for reporting. This clears the slate of unrecoverable money owed to your business’ that are owed to your company moving into the new financial year. 

Create a plan for next year

If your EOFY was a pain this time around, you don’t have to simply do it all again next year. With the aid of professional bookkeeping services, you won’t feel the full burden of the necessary reports and tax lodgements. So make a plan now for how you will switch to real-time bookkeeping and reporting moving forward. 

Visory is here to help with catch-up record keeping, payroll and insights, and ongoing internal finance support. Be ready for the next EOFY by partnering with a trusted team of experts now. 

Cash vs. accrual accounting: What’s best for your business?

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There are two primary accounting methods: cash and accrual accounting. The accounting method you choose will affect many aspects of your business, including how you report on business income and expenses. 

Small organisations can choose between accrual and cash basis accounting. However, publicly traded companies must use accrual. 

Additionally, once your business revenue reaches $10 million, you’ll need to use accrual accounting and calculate your goods and services tax (GST). Small businesses with large inventories may also benefit from it.

Let’s talk more about cash vs. accrual accounting and how to get help if you don’t know how to make the change. 

Table of contents

  • What is accrual basis accounting?
  • How does accrual accounting work?
  • What is cash basis accounting?
  • How cash basis accounting works
  • What are the main differences between accrual and cash basis accounting?
  • Accrual accounting or cash: Which one is best for my business?

What is accrual accounting?

With accrual accounting, you track your income and expenses when they take place, regardless of when you pay bills or receive payments. For example, you’d record an invoice when you send it, even if your client hasn’t paid yet. 

Accrual accounting uses a double-entry system, meaning that you track twice, once for debits and another for credits. Double-entry can help prevent fraud and give you a more realistic view of your cash flow. 

Organisations of any size can use it. It provides a more complete financial picture, even when you don’t get paid right away for your products or services.

Here are the key pros and cons of the accrual accounting method:

Pros  Cons
It’s helpful when tracking a variety of accounts and large amounts of revenue and expenses.  It’s more complicated because you have to track actual cash on hand plus outstanding income and costs. 
Making financial projects and planning for the future is easier. Financial reports may need adjustments for as-yet-unpaid amounts when discussing current balances.
By logging cash flow with double entries, it’s simpler to catch mistakes or fraud. Bookkeeping and accounting may be more time-consuming.
It meets acceptable accounting practices and is the standard for public companies.  You could end up paying taxes on income that clients and customers haven’t paid you yet.

How does accrual accounting work? 

Accrual-based accounting is an accounting method that tracks all outstanding credits and debts as if they have already happened. 

If you complete a service, you report it as though you’ve already been paid in your books. Then you debit any invoice totals even if you have not cut a cheque yet. You can see all of your transactions—including long-term, future ones—in one place.

What is cash basis accounting?

Businesses that have an aggregate turnover of less than $10 million may use cash basis accounting to calculate goods and services tax (GST). 

Your internal finance team will only include transactions in tax reporting when money changes hands. In other words, when you make a sale, you don’t have to record revenue until you actually get paid. 

Regardless of annual GST, approved government schools, charitable institutions, and gift-deductible entities can use cash basis.

Here are some pros and cons to consider: 

Pros Cons
It works best for small companies that don’t have long payment cycles. Cash basis accounting can’t show you the debts that are outstanding, and accounts receivable payments that you haven’t settled. 
Cash accounting helps you track cash flow and determine what is in your bank accounts. You may not be prepared for incoming invoices from vendors or suppliers.
It’s simple because you only record transactions at the time they occur. Not all businesses can use cash accounting. 

How cash basis accounting works

With cash basis, you only track transactions when they happen. Each time your company makes a profit, you add to your total revenue. 

When you receive an invoice, you subtract. What it can’t show you is upcoming debts. These may include monthly accounts receivable cheques or recurring bills. 

What are the main differences between cash and accrual basis accounting?

Cash vs. accrual accounting differs primarily in the way you keep records and detail your cash flow. 

It’s easier to track with cash accounting because you only track funds when they come in and go out. However, it doesn’t show the full picture of your financial health. Your cash flow may look favourable, but you could have thousands in unpaid costs that are not readily visible. 

Accrual is more complex but also gives you a more accurate picture of your finances. You’re not tracking only actual funds, but also expected income and costs. If you have a floor installation business, for instance, you would report the project when it’s done — even if the final invoice is outstanding.

Cash or accrual accounting: Which is best for your business?

Either method works for small businesses, but large businesses should stick with accrual. Your internal finance team may need an online bookkeeping service to help with accrual accounting. 

When to use cash basis accounting When to use accrual accounting
You have a simple revenue stream with little time between invoices and payments You have complex revenue and cash flow
You value short-term cash flow over long-term projections You need to know your cash flow total including future projections
You generate less than $10 million a year You generate more than $10 million a year

Small businesses can choose between the two accounting methods. Larger companies must use accrual basis accounting in Australia by law. But even if you don’t meet the mandatory threshold, you might want to switch to accrual to get a better picture of your business finances.

Connect with Visory today, and our team of internal finance experts will get to know your business and which accounting method is right for you. You’ll partner with a team dedicated to your accounting needs and be able to access your books in real-time.