6 accounting tips for independent retailers with Kieran Phelan
Accounting can be difficult, especially as an independent retailer that has 100 other things to do. In this blog post, we speak with Kieran Phelan of Cloud 360 Accounting to get 6 tips that can make accounting that little bit easier to manage.
Owning an independent retail business has huge potential to be a big earner for those who can run their operations well. For anyone who has an independent retail business, knowing how to run your accounting is crucial to help you manage your finances properly.
In this guide we spoke with award winning accountant Kieran Phelan of Cloud 360 Accounting to provide you with the best practices, helpful tips and tricks to help make accounting easier for independent retailers.
6 accounting tips for independent retailers
Invest in Reliable Accounting Software
The best way to start out your more efficient accounting system is to invest in the right software that can help you get the job done. Working alongside your POS system, the software can be completely compatible with your sales process.
We recommend using Xero due to its level of compatibility and integration with other apps.
In Xero, transactions and cash flow all integrate seamlessly from your POS into the software, along with your inventory as well. This is what gives it the most advantage over other software providers on the market.
Good accountancy software like Xero can connect with a reliable POS system can be a huge advantage for your business. Handling payments and recording sales in this way will help you with inventory management, profitability margins, understanding customer buying habits and more face-to-face sales.
Not knowing how to manage your accounting properly in a retail business can lead to problems further down the line. Understanding that you need to track your business and personal expenditures separately is the first step in getting your accounts in order. Any business transactions should be coming from a separate account, not your personal one. This will help you keep better track of your cash flow.
Cash flow refers to the amount of cash that is transferred in or out of your independent retail business. Keeping a keen eye on the incomings and outgoings will help you avoid problems with money. There are two things you can do to ensure a positive cash flow balance in your business:
Try to avoid making early payments – You may think that paying your invoices early is wise but it can mean you end up with no money left for more necessary expenditures. Stick to your vendors payment terms and use the cash flow to pay the important things such as salaries so that you don’t disrupt your business.
Keep cash on hand – Having a negative cash flow is a sure sign of a business that isn’t doing well or that has poor accounts management. Keeping cash on hand is always useful for an emergency. Independent retail businesses can have unexpected costs crop up at any time. Having a set amount of money safe in an account will help you tackle these costs without affecting your cash flow.
Manage Your Inventory Wisely
An independent retailer may be working with restrained resources. You could be running on a limited budget and, because of this, you have to manage your inventory very carefully. The loss of goods through theft, expiration or even carelessness are all things you cannot afford.
Accountancy software and a POS system will help you keep every piece of inventory accounted for. This means you can observe your usage, conduct inventory audits and control access to the inventory you have.
Know These 4 Important Accounting Metrics (Profits and Costs)
Understanding accounting metrics can really help you improve your business, and it’ll help prevent cash flow issues further down the line. These are the top 4 metrics that we recommend retailers should track:
Costs of Goods Sold
Cost of goods sold or COGS refers to the price of producing the goods that you have sold. It includes the inventory sold plus how much it cost to make with things like labour, packaging and shipping. Connecting your retail business to your accounting software will help you know anytime those COGS increase or decrease. This, in turn, helps you manage your selling prices.
Expenses within a business can have a direct effect on your profit and loss statements. Fixed expenses are those that have to be paid out, regardless of the sales that you make. These will include things such as utility bills, rent, taxes etc. They can vary from month to month so, when planning out your finances, try to take an average.
Your break-even point in your business will be when you’re not making a profit or a loss. The money that it took to make the goods and then sell them on has been regained. It’s important to know at what point your retail business has broken even so you can plan ahead to meet costs.
Once you have passed the break-even point, any money afterwards that comes into your business is considered a profit. Tracking your sales and outgoings so you know when those profits are being made is a huge advantage of doing proper accountancy in your business.
Make Sure To Be Tax Compliant
You’d be hard-pressed to talk to an accountant or do your own accounts without having to think about taxes. Paying your taxes properly and paying them on time is crucial for an independent retailer, no matter what you sell.
A professional accountant can help you take care of your tax needs, especially if you find it difficult to keep up with all of the regulations and tax compliance rules. As professional accountants (Cloud 360 Accounting), we are aware of the tax regulations and keep track of the big changes that come up as well.
Managing an independent retail business is hard work. Working with an accountant, investing in the right POS system and the right software will free up your time to focus on other areas of your business.
Our top advice is to keep an eye on your cash flow, make sure you know when you are in profit and use reliable accounting software like Xero to keep everything running smoothly.