The Importance of Clear eCommerce Bookkeeping for Vape Shops

ECommerce is a popular business model, but it comes with an array of bookkeeping challenges that make it difficult for new entrepreneurs to keep accurate financials.

ECommerce is an attractive business platform because the entry barriers are very low, but this also means that entrepreneurs will be more and more inexperienced each time, and understanding bookkeeping is probably one of the most common deficiencies among them.

In this article, we’ll learn why eCommerce bookkeeping for vape shops is important and the most common mistakes that arise.

Table of Contents

1. Why Is Bookkeeping for ECommerce Vape Shops Important?
2. Top ECommerce Accounting Mistakes

Why Is Bookkeeping for ECommerce Vape Shops Important?

1. Liquidity

Running a liquid business gives you the ability to quickly purchase or sell an asset without the need of changing the price of the asset. Being able to convert an asset into ready cash without affecting its market price is extremely important for a business that needs to spend in inventory in order to survive. Being liquid also allows you to take advantage of opportunities when they arise without having to prepare for them, which is not how opportunities usually work.

2. Healthy Cash Flow

A detailed understanding of the amount of money you have and the amount of money you are planning to spend. Knowing how much money you can spend seems trivial, but it’s one of the most important aspects of running a successful business. Being liquid means you can spend but you won’t know if you are in fact liquid unless you understand your cash flow every step of the way.

3. Return on Ad Spend

Spending on advertising is a tricky subject when it comes to the vape industry, but it can still be done in certain ways. That said, whatever you decide on in terms of advertising, the idea is that the ad investment generates more sales for your vape store so you’ll want to make sure that you keep track of the return on that investment. Doing so will help you understand the effectiveness of each ad campaign your business is a part of.

4. Evidence-Based Decision Making

Making decisions on a gut feeling is not always bad, but when you are running a business it’s best to make sure that every important decision is based on tangible evidence and data you can sustain your decisions on. Not only is it easier to make decisions based on organized bookkeeping, but it’s also easier to identify the opportunities when they arise. Gut feeling decisions will still be there to be made at certain times, but clear bookkeeping allows you to keep them to a minimum.

5. Understanding Profitability by Product SKU

Because you’re running a vape shop, chances are that your store carries quite a bit of product. All sorts of different vape systems and e-juices, each one with its own specific price tag and its own profitability per sale.

Knowing how much a product costs you and how much you’re selling it for is easy, but knowing how much it is costing you to sell it should also be taken into account in this equation. This is something you’ll only be able to achieve through a solid understanding of your financials. Knowing what products and brands are more profitable will set you apart from the competition and help you run a successful online vape shop.

6. Organized Inventory Management

Although you’re running an online vape store, you are also running a business that requires ordering products from manufacturers and sustaining that inventory. If you don’t have clear bookkeeping to tell you how much you can spend, then you won’t be able to plan ahead on how much you’re looking to sell. In other words, not being able to buy product with a clear goal means that you won’t know how much you stand to make in the future.

Top ECommerce Accounting Mistakes

1. Mistaking Net Sales Revenue for Gross Revenue

When you run an online shop, the platform you sell in will deposit the amount sold directly to your defined bank account. But this amount will not cover other expenses that you’ll need to take care of as a business. This could cause cash flow issues as you might be thinking your business makes a certain amount of money when it’s really making less.

2. Mistakes in Inventory Valuation

Having inventory mistakes means that you could be accounting for less or more money than you actually have in product and other assets. This could in turn affect the way you’re calculating your cost of sales, resulting in unreliable and inaccurate calculations.
This problem can be mitigated with regular stock counts but if the inventory is very large then a regular physical stock count could be unsustainable. If this is the case an inventory software might be in need.

3. Relying on Third-Party Advice

Of course, having a professional accountant look after your bookkeeping is a good idea. But a good accountant is not necessarily a trustworthy accountant, so you’ll want to make sure that everything is actually as your accountant says it is.
You can make sure this is done by requesting monthly statements and reports. But you could also purchase eCommerce accounting software that does these reports for you and shows you financial results for your business live.

4. Using Personal Credit for Business Purchases

Some people use personal bank accounts and money to pay for business costs like office supplies and other miscellaneous expenses. However, this could create a huge mess in the long run because you might not be able to tell what source you used for which expenses.

 This could quickly turn into an eCommerce accounting liability and potentially result in fines if you are audited. Because of this, you’ll want to set up a business account, apply for a small business credit card, and set up a clear receipt management system.

5. Bypassing Bookkeeping Reviews

Business owners wear many hats and usually have little time to do anything else than run the business on a day-to-day basis. That’s why they often rely on accountants to do all of the bookkeeping for them.
But not doing regular bookkeeping reviews and report analysis is a grave mistake that could lead to massive losses and even fines if taxes are not being paid accordingly.

6. Not Organizing a Chart of Accounts

A chart of accounts is a summary of all your business’ expenditures organized by department or category. With a chart of accounts, you should be able to recognize what expenditure has to be charged to what specific budget of your company (marketing, sales, etc.).

If you run a small online vape shop it could be that you don’t actually have different budgets, in which case the chart of accounts might not be as critical. However, it will always help to know where you’re taking money from and what you are spending on regardless of your company’s size.

7. Overhead Expenses Are Overlooked

Overhead expenses are the expenses destined to operations like marketing, administration, staffing, and a few others. Operating expenses are a bit more difficult to keep track of, but if they go overlooked then it could result in financial mismanagement and unclear books.