Selling on Shopify is a great thing for small to medium brands as the platform helps entrepreneurs. Shopify offers third-party integrations that can make adding features and functions seamless.
The system will allow sellers to make their customers have a superb shopping experience.
A lot of successful businesses started on Shopify. However, success isn’t easy to achieve. You have to consider many things as financial matters are crucial to any business.
You’ll have a higher possibility of making your business on Shopify successful if you understand how finance works.
When deciding, it is critical to have accurate data regarding finances. It will help you decide your company’s growth, and which direction to take.
Also, financial risk is volatile. You can avoid it from happening as risk management is available. But you need to learn a few things about it and why you should understand why Shopify Risk Management is important.
When you understand financing, you could lead your Shopify store to success. And to make it more successful, here are the financial mistakes you should avoid.
These things will also help you manage risks and avoid financial loss while selling on Shopify.
Inventory / Cost Of Goods Sold Miscalculation
Most sellers on Shopify keep their product inventory. All the items, whether you purchase them for resale or are self-manufactured, have a price attached to them.
It is essential to calculate the cost of goods sold or COGS. And keep in mind that it has to be accurate at all times.
A lot of Shopify sellers inaccurately calculate their COGS. This is a very crucial mistake that even a few cents off could highly affect your business’s financial status. Imagine some items are a few digits off.
When you add them all up, it could be a huge loss for your business.
Also, it is an essential factor that can lead you to make the right business decisions for your company’s success. So make sure that you calculate your COGS accurately.
Sales Tax Miscalculation
Miscalculating sales tax is highly similar to miscalculating your COGS. It affects your company’s net income.
You might think it’s okay to proceed with this matter without understanding the whole point but this is a crucial factor.
One of the most common errors people make is not recording their tax liability properly. But it should be in their accounting system. Also, recording them properly is essential.
We also found some people who do not understand which areas are taxable and what factors are not. This could affect some areas as they collect sales tax even though they shouldn’t.
You have to make sure that everything is recorded properly, and which ones are not taxable. When you do this properly, sudden financial losses are unlikely to happen in your company.
Identifying Shopify Deposits As Income
When you have a huge amount of transactions every day, you’d probably record the income when Shopify transfers the payment to your bank account.
This could be good in some way, but this gives some issues you need to acknowledge.
The first issue it could give you is matching the inputs, whereas the transactions must be recorded when they happened and not when the money went through.
It usually takes two days for Shopify to process payments, and transfer the money to your bank account.
So if the transaction happened 2 days before the end of the month, you’ll most likely receive the money on the 1st or 2nd of the following month.
It is best to record the transaction when it happens because when you put it in the paid day, it’ll confuse you and it will no longer be accurate for the succeeding months. It’ll be difficult to track it.
Another issue to take note of is the inaccurate income and data missed. Generally Accepted Accounting Principles (GAAP) state that every amount should be placed in its proper location. It sounds easy but many Shopify sellers don’t do this.
Most of them treat everything as revenue as long as the money comes in. But when a buyer pays, a certain amount goes to tax, shipping, and other items that need to be paid.
It is best to go deeper and identify everything. It could take a lot of time but this will give you a better understanding of your business as the financial data is accurate.
Combining Business And Personal Activities
Although this mistake isn’t only for Shopify sellers, it’s happening to most of them.
Since Shopify shops are usually owned by owners with two employees, most of them can make a mistake mixing their personal expenses records with their store’s.
Even though it is a little amount mixed in the company’s expenses, tracking it will be difficult. In the end, it’ll give you inaccurate data which we are trying to avoid. Also, it can impact your tax liabilities.
The best approach is to always separate your personal and business financial activities. You should never get money from your store’s revenue for your interests.
This will always give you accurate financial data, and at the same time, keep your cash flow separated and intact.
Little To No Accounting Knowledge
When you start selling on Shopify, and you don’t have any idea how accounting works, then your business is in a critical stage.
Tracking cash flow in the company is an essential part. You need accounting to track expenditures, returns, and growth.
The good thing is that you don’t need a complicated process to understand everything. Bookkeeping, taxes, employee expenditure, and all about the cash flow may seem challenging to understand.
One mistake of one item could lead to a total mess.
The best part about Shopify is that you can use third-party apps or tools to connect to your Shopify store.
You can use QuickBooks to track everything. You only need to connect your Shopify store to QuickBooks.
And you can use Webgility to automate the process to QuickBooks. This will give you a seamless process, and you’ll avoid making crucial mistakes regarding your cash flow.
Configuring The Shipping Costs
Shipping and delivery may seem simple for many Shopify sellers. Despite that, it is one of the most common mistakes they make. Which areas provide free shipping? What areas could have higher delivery costs?
There are plenty of questions to think about. But how does it affect your store’s cash flow?
The answer is quite straightforward. When your shop’s shipping rates are not set to the way it is supposed to be, you could be paying for more or less.
Plus, you’ll have fewer customers as they think about your shop’s credibility. This will affect the smooth cash flow you want to have. Also, you can even reach customers from other places.
Make sure to set the shipping and delivery to the way it is supposed to work. In case you need guidance, Shopify has documented everything to assist you.
Once you’ve set it right, you won’t need to pay less or more to ship your customers’ orders to their delivery addresses.
Avoid These Mistakes
These things may seem simple, but unfortunately, a lot of Shopify sellers take them for granted. In the end, they end up with financial losses. Of course, you wouldn’t want that in your shop.
Once you’ve successfully avoided them, you’ll have better cash flow, as your financial data becomes more accurate.
