Whatever business you do online you will at some point need to take care of the accounting. Even though it might be a painful process, you will need to do it. Otherwise, how do you know if you are profitable or not? You will also need your numbers when the tax season comes around.
Preparing tax forms for your WooCommerce store can be a challenging task. It may even cause anxiety for some people. If you don’t take care of a few accounting items from the start you may end up spending a lot of time doing reconciliations instead of focusing on your core business.
Here are 4 WooCommerce accounting tips to make your life easier.
1. Know your cost of goods sold
It is extremely important to know the cost of goods sold. It helps you know your margins, your best, and how much you are making.
When calculating the cost of goods sold, it’s not just the purchase price of the product that you need to consider. Other costs such as materials, labor, packaging, shipping, operations, etc. may be involved. You need to get the complete cost of your products.
This is an important number to have in order to know your gross margins. It can also help you analyze which products are more profitable for you and you can try and sell more of those.
WooCommerce has no built-in functionality to help you track your cost of goods sold. However, you don’t need to despair as there is an excellent plugin available to help you track your cost of goods sold.
The plugin is an excellent solution for tracking your cost of goods sold. Once you install and activate the plugin, you will get a new field on your product page in the backend. The cost excluding tax field can easily store your cost of the product.
It works with both simple and variable products. You can set a single cost of goods sold for all variations or individual costs for different variants.
Another great feature of the plugin is the ability to show you your profit on each product. You can also add the cost to your products from the quick edit function of each product. An example is shown below.
Also, with Cost of Goods for WooCommerce Pro you will get advanced graphical reporting and other advanced features.
2. Know your taxes
One of the areas that many WooCommerce store owners tend to ignore is taxes. It is important to understand the laws and regulations in the locality that your store operates.
There are several different types of taxes, however, sales tax is almost automatically applicable to most WooCommerce stores. Once you figure out your sales tax rules and rates, you can easily configure your store to start charging taxes. If you enable the tax option, you will see a new tab in your WooCommerce settings for taxes.
There are many plugins also available to help you manage your taxes. If you are in the EU and need to charge VAT, EU VAT for WooCommerce is an excellent plugin.
With EU VAT for WooCommerce Pro, you can collect and validate EU VAT numbers on WooCommerce checkout. Optionally you can automatically disable VAT (i.e. exempt) for valid numbers.
There are many other similar plugins available for other regions and countries.
3. Set money aside for taxes
If your business is making a profit you will at some point need to pay taxes. Sometimes these taxes can be paid monthly, quarterly, or yearly depending on where the business is incorporated.
There are different types of taxes, for example, sales tax. This is collected when you sell your products. It is important to know what the rate of sales tax is in your jurisdiction and how much you need to collect per sale.
Another example is income tax, if your business is incorporated, you may pay income tax or corporation tax on profits. Of course, you will need the services of an accountant to know how much tax you need to pay.
Your business may also need to pay employment tax, in most countries it is known as PAYE (Pay As You Earn). This tax is deducted from employees’ salaries and remitted to tax authorities.
One of the best investments you can make for any business is hiring an accountant. An accountant, who is well versed with local tax legislation in your area, can help you understand what kind of taxes you are liable for, how much are they, and deadlines for payments of taxes.
As a general rule, it is always handy to set aside about 30% of your sales for taxes. This may vary from region to region but should be suitable for most businesses.
It would be useful to have a separate account in which you deposit about 30% of your sales. When tax season is around you can pat yourself on the back as you will be well prepared. You will reduce the tax burden on your business by saving.
4. Use an accounting platform with WooCommerce
QuickBooks is one of the best accounting platforms. It doesn’t break the bank and is one of the most user-friendly accounting systems. It can help you track your sales, purchases, business expenses, margins, inventory, etc.
You don’t need to be an accountant to use QuickBooks and that is one of the reasons it is popular with WooCommerce users. It’s available in a desktop version and also an online cloud-based version.
There are several plugins available to integrate WooCommerce with QuickBooks. Integrating QuickBooks with WooCommerce will allow you to update your data daily, weekly, or on the frequency you require. This gives you an overview of your business’s financial health at any time, rather than entering data at the end of the year or when tax season is around. QuickBooks Sync for WooCommerce is an excellent solution. It is easy to set up and can sync all your store’s data so you won’t have to do any manual entries.
There are other similar accounting platforms such as Zoho and Xero, however, syncing options for these platforms are limited.
Implement these 4 tips and your life will become much easier. You will have taken care of essential accounting, tax, as well as created a provision for payment of your taxes. When the next tax season comes around you can relax and sit back!