Now that we all have personal computers, however, a lot of this manual work is automated. Just set up your database or spreadsheet with fields for each of the items listed previously.
Then create a new record for each item in inventory. Whenever you purchase new inventory, create new records. When you sell an item, mark the record for that item sold, and fill in the date sold and sales price fields.
At the end of each month, have your program run a report that lists the total cost of the entire inventory you currently have in stock. You should also run a report showing all items sold and calculating your total profit sales price less cost of item on these items. That should provide the basic inventory and sales information you need for your accounting system discussed later in this chapter. Once you get good at it, you can use your inventory management system to help you decide when to order more items for sale.
Set a minimum quantity that you want to keep in stock, and program your database to alert you when the number of units on hand drops below this number. Another option for tracking the inventory of your eBay business is to use one of the advanced auction management tools offered by various third-party sites. You can use Access or Excel to store your customer information. In addition, you can use eBay Selling Manager or most other auction management tools to track your customers and their sales activity.
What customer records should you keep? Once you have all this customer information stored, what do you do with it? The date sold and sales price data, specifically, transfer directly to the same fields in your inventory management database. In addition, some sellers use their customer lists to solicit additional sales, mailing or emailing them when they have new merchandise available or a sale coming up. Financial Records You can use the information stored in your inventory and customer management systems to help you prepare your ongoing financial records.
How long should you hold onto your original documentation? Some experts say to hold onto all your receipts and invoices for a minimum of three years, but that might not be long enough. For example, the IRS requires that you keep documentation on all your assets for the life of the asset.
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This means you might want to hang onto this basic documentation forever. Just clear out a corner of your garage or attic where you can store all your shoeboxes, and be done with it. What kind of hard-copy documentation should you be holding? Then check out Accounting for Everyone www.
Throwing all your receipts in a shoebox is just a start.
We can, however, take a look at what you need to track to make your accounting system work. Tracking Your Business Activity All accounting systems track basic types of activities: revenues and expenses.
Revenues are the sales you make to your eBay customers. Expenses are the costs you incur in the running of your business—the inventory you have to purchase, as well as all those other things you need to buy to make your business run. In accounting terms, the money you take in creates a credit on your books. The money you spend creates a debit. When your debits exceed your credits, your business is losing money. Obviously, the former position is preferable.
To make your accounting system work, you have to enter each and every financial activity of your business. Purchase some merchandise for sale, enter it in the books. Make a sale, enter it in the books. Buy some supplies, enter them in the books. You get the idea. At regular intervals—typically at the end of each month—you add up all the credits and debits after putting them in the proper slots and take a snapshot as to how your business is doing.
These note Confused?
Key Financial Statements There are two key financial statements that you should prepare at the end of each month. These documents measure the condition of your business from two different angles. Income Statement The income statement reflects the revenue your business generates, the expenses you pay, and the profit or loss that filters down. This is done by showing your revenues, subtracting the cost of goods sold which reveals the gross profit , and then subtracting all your operating expenses to show your net profit. Most businesses will create an income statement for each month in the year and then a comprehensive income statement at the end of the year.
Many businesses like to track their progress over the course of the year and create a year-to-date income statement at the end of each month, as well. Balance Sheet The other essential financial statement is the balance sheet. The balance sheet looks at your business in a slightly different fashion from an income statement. Instead of looking at pure monetary profit or loss , the balance sheet measures how much your business is worth.
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It does this by comparing your assets the things you own—including your cash on hand with your liabilities the money you owe to others. Assets go on the left side of the balance sheet, and liabilities go on the right. You should generate a balance sheet tion of income statement and balat the end of every month and at the end ance sheet line items.
You have two practical options: hire an accountant or use an accounting software program.
You could also, I suppose, keep your books by hand, on oversized sheets of ledger paper while wearing a green eyeshade— although hardly anyone except latter-day Bob Cratchets do it that way anymore. The simplest of these programs are the personal financial management programs, such as Quicken and Microsoft Money. They may be able to do the job if your business is simple enough, but most small businesses will find them somewhat limited in functionality. A better choice for many eBay businesses is QuickBooks, which is a more full-featured small business accounting program.
If your business is big or unique enough, however, even QuickBooks might not be powerful enough; in that instance, you can evaluate other more powerful business accounting packages. Quicken comes in various flavors, only one of which has features of use to the small business. Microsoft Money Microsoft Money www. You can use QuickBooks not only to do your monthly accounting and generate regular financial statements, but also to manage your inventory, track your sales, and do your year-end taxes.
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QuickBooks even integrates with PayPal, so you can download all your PayPal-related transactions into the software program, and manage everything all in one place. This Online Edition keeps all your records online, so you can do your accounting from any computer, using nothing more than your web browser. Accounting Assistant lets you export eBay and PayPal data needs.
Get more details—and download the program—at pages. Many small businesses use QuickBooks to generate their monthly financial statements but then call in an accountant to prepare their quarterly estimated taxes and year-end tax statements. This is a pretty good combination; you can have QuickBooks print out just the right data that your accountant will need to prepare your taxes. Of course, you can also use an accountant to handle all of your financial activities.
Where do you find a reputable accountant? You should check with your local chamber of commerce or SBA office, as well as other local small business organizations. In addition, you can use the Internet to search for small business accountants in your area. And the packing and shipping of all the items you sell.