A dropshipping business is a smart way to run a business without handling storage on your own. It is a business model wherein the retailer does not keep its product. Instead, a third party stores and ships ordered items directly to the customer. The dropship model brings a lot of conveniences to store owners.
However, before settling with this kind of business, you need to consider some factors, particularly concerning bookkeeping and accounting.
Potential Bookkeeping and Accounting Challenges of a Dropshipping Business
This business model generates more invoices than the usual e-commerce businesses.
If your third-party partners are located in different regions, your taxes should reflect local regulations.
It would help if you also find a more straightforward way to manage your invoices and other paperwork.
Every business needs a dedicated bookkeeper and accountant to do the job efficiently, but the requirements above establish the need for them even more. This need becomes even more prominent as your business grows. With the right accountant, you can deal with complicated taxes, manage your digital ecosystem even better, and grow your business more quickly.
Setting Up Chart of Accounts
In simple terms, the chart of accounts is the summary of your eCommerce business transactions. It is the list of individual accounts that makes up the company's general ledger. The chart of accounts also contains the balance sheet of the company's assets, liabilities, revenue, and expenses, helping you see the bigger picture at a glance.
The key to having an organised and defined chart of accounts is creating categories and making more detailed subcategories. Usually, the default account would work for most dropshipping businesses. However, if you want a more customised approach, personalisation is the way to go. Seeking help from your accountant would help you figure out a better way to set it up.
Managing Invoices
The dropshipping business adds to the seller's convenience in bringing the orders to the customers, but there is also additional work involved in the process. More paperwork is necessary for the process because there should be data integration—for the product catalogue, inventory, and orders—between the retailer and the supplier.
Setting up invoices helps manage the orders more efficiently. But instead of creating one invoice for bulk orders, it is vital to have one invoice for each order. This method would help both parties manage the orders better as they can file them according to their select data points (invoice number, paid amount, handling cost, address, and so on).
Income and Sales Taxes of Dropshipping Businesses
Every business in Australia must adhere to the Australian Taxation Office’s business income and tax guidelines, which are in this link.
Besides income tax, your customers also need to pay the sales tax, the mandatory tax applied to every good and service in the country. While the customers are responsible for this, sales tax collection depends on the seller and varies in different regions. Some eCommerce platforms will help collect them on your behalf, but you must understand the tax regulations per region if that is not the case.
It would help if you also look up how to get exempted from some of these rules. Doing so would help you ensure that the taxes you must manage are accurate.
Conclusion
Proper bookkeeping and accounting are essential in every business. Without these, tracking income and expenses would be difficult. They also help ensure that your business complies with the important rules and regulations. Dropshipping taxes in Australia are different from other countries, and it is more complex and confusing than others. It is best to seek the service of a professional accountant to help you deal with this concern appropriately.
If you are looking for an accountant for dropshipping, we offer that kind of service. The Ecommerce Accountant is an award-winning accounting and bookkeeping firm in Australia. We can help you manage your online business more efficiently and ensure it always complies with ATO regulations. Contact us to learn more about how we can help you.
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