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Rewinding the Clock: How Deep Should You Dive to Tidy Up Your Books?

As we dive headfirst into 2024, many ecommerce sellers find themselves facing tax-filing deadlines and a familiar question: How deep should you go with your bookkeeping clean-up? Whether you’re a seasoned ecommerce entrepreneur or just starting, getting your financial house in order is a crucial step toward building a successful business. In this blog, we’ll explore the importance of bookkeeping clean-up and how it can impact your ecommerce venture.

For Most Sellers: Going Back to the Last Tax Filing

For the majority of ecommerce sellers, the answer to the “how far back” question is relatively straightforward. Typically, about 80% of our clients at Seller Accountant need to go back to their last tax filing. This is because their businesses may have consistent financial activity and they have already filed taxes for that year. If you’re reading this in January 2024, you’re likely looking at building your finances from January 2023 onward, especially if you filed your 2022 taxes.

This one-year window allows you to ensure your books are accurate and up-to-date, especially with tax season just around the corner. It’s an essential step in maintaining financial transparency and ensuring that your business is prepared for the coming year.

…Unless Upcoming Exit Strategies or Investors Need You to Go Beyond the Basics

However, for some ecommerce entrepreneurs, going back a year might not be enough. If you’re planning to undergo due diligence, whether for selling your business or bringing in new investors, you should consider going an additional year back.

Imagine it’s the beginning of 2024, and you anticipate investor-level due diligence in the middle of the year. In this case, it makes sense to go back and clean up your finances for the entire year 2022 as well. Having two complete years of bulletproof financials can significantly ease the due diligence process and boost your credibility in the eyes of potential investors or buyers.

…Or You’re a New Ecommerce Business

In this case, your business might not require extensive clean-up. Perhaps your ecommerce business is relatively new, straightforward, or doesn’t have a complex financial history. In such cases, you might only need to focus on reconciling the accounts from your most recent bank statement and starting fresh in the new year.

How Detailed Should You Be When Cleaning Up Historical Financial Data?

It depends on your specific circumstances and your future financial goals. 

Exit Planning or Raising Capital:

Detailed bookkeeping is crucial when other parties care about the accuracy of your financial records. This can be the case when you’re seeking an SBA loan, courting investors, or preparing to sell your business. In these situations, the devil is in the details, and having accurate, month-by-month records is essential.

  • Raising Capital: Investors and institutions like the SBA demand meticulously maintained books. A detailed financial history not only increases your credibility but also expedites the funding process.
  • Selling Your Business: Potential buyers scrutinize past financial data to gauge business health. Detailed records can lead to a better valuation and a smoother sale.

Personal Peace of Mind:

Your confidence in understanding business performance is directly tied to the clarity of your financial data. It allows you to confidently answer important questions, such as ‘Did my business make a profit last month?’ It also helps you manage your cash flow effectively, especially if your business experiences seasonal fluctuations. 

Empowered Decision-Making Ability:

Understanding your historical data allows you to create more realistic forecasts, avoiding the pitfalls of over-optimistic assumptions. By comparing your current performance to that of the previous year, you gain invaluable insights into your business’ strengths and weaknesses. This understanding is particularly vital for making informed decisions and ensuring your financial projections align with your business’ historical trends.

In essence, historical data serves as a reality check for your business goals, ensuring they’re grounded in evidence rather than wishful thinking. As an ecommerce entrepreneur, you need to balance ambition with pragmatism, and accurate accounting provides the foundation for that equilibrium.

Take Action for Ecommerce Success

In the world of ecommerce, where success is often determined by margins and metrics, having a well-organized financial book is more than just good practice—it’s a strategic advantage. Accurate bookkeeping, especially when done on an accrual basis and extending back to at least the last tax filing, allows for a quick assessment of your business’ health and prospects.

As we embark on a new year, take the time to evaluate your bookkeeping practices. Are your financial records up-to-date and accurate? Do you have the historical data you need to make informed decisions and realistic forecasts?

If you find yourself in need of assistance with your ecommerce accounting, reach out to us at Seller Accountant. Our specialized expertise in ecommerce accounting, bookkeeping, and financial coaching can help you achieve investor-grade financial tools, accurate insights, and stronger cash flow and profitability.

Make 2024 the year your ecommerce business thrives, and remember, success starts with mastering your finances. Happy New Year, and here’s to a prosperous journey ahead! Contact us today to see how we can help you achieve your financial goals.

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