Bookkeeping Needs of a Canadian Retail Business
A retail business can vary in shape and size. You may run a local grocery store or a nationwide e-commerce store, sell two luxury bags in a day or 100 different items in a super store – the one thing common between a trendy boutique and a mom-and-pop store is robust bookkeeping. At the end of the day, after the store closes, cashiers tally the accounts, the store manager checks the inventory, staff restocks the shelves and warehouses, and the bookkeeper manages vendor payments, payroll, and taxes. A robust bookkeeping system is always running behind the counters for a retail store to open the next day.
How to Set Up an Efficient Bookkeeping System
Failing to record even a single transaction not only messes up your books of accounts but also misleads you into making ill-informed business decisions. But using the right accounting tools and software can help you manage your business finances faster, better, and more accurately.
Setting Up the Accounting Structure
When it comes to setting up general ledger accounts for a retail business, the secret lies in the details – how many locations it operates in, branches in each location, what products each store sells, and more. For instance, if your store has branches in three locations, your bookkeeping system can use different codes or suffixes, such as 001 (for the main outlet), 002, and 003, respectively, for the others.
You must decide on how detailed you would like your bookkeeping to be. Do you want to track only sales, sales margins, and cost of sales for each product category or for every individual product? Would you prefer to manage inventory based on the varying GST and PST (Provincial retail sales tax) rates of each item? All this must be thought through carefully so it can be incorporated into the system.
And it doesn’t end there. You then must train your staff to use the system properly to avoid inaccurate data and wrong purchases.
Selecting Accounting Software and Other Tools
Having decided how specific and nuanced you want your bookkeeping to be, you then have to look for an accounting software that meets all your needs. Some common software every retailer needs is for inventory management, sales tracking, and point-of-sale (POS) systems. User-friendly software with comprehensive reporting tools is well worth the expense. The time and effort automation can save, and the level of accuracy it can offer for routine tasks such as generating invoices, recording expenses, and managing payroll, can help you focus on other growth-related planning.
Maintaining Accurate Sales Records
A retail business thrives on sales. So, maintaining meticulous sales records, including details of products sold, date, amount, payment methods, and applicable sales tax, is necessary. A consumer uses the retailer’s bill as proof of spending, and businesses use it to claim input tax credit. Hence, billing and sales records should be accurate and compliant. Sales records help with bank reconciliation and during audits to facilitate accurate revenue reporting.
Choosing an Inventory System
No retail business can function without an inventory. Retailers need a robust inventory system that records when inventory is purchased, prices stock for sale, and tracks when it is sold and is out of stock. Depending on what goods a retailer stocks, they should choose an inventory system.
A perpetual inventory system tracks quantities and values of each item in real-time, with occasional physical counts to verify the accuracy of the system. It is mostly used for high-value or fast-moving items that need frequent counting.
A periodic inventory system involves physically counting goods periodically. It is ideal for less valuable or slower-moving goods that can be counted annually.
Inventory Valuation
Another important aspect in retail bookkeeping is valuing the inventory. The standard procedure is to take the lower of the inventory cost or fair market value (FMV). This is a conservative method, as this amount is deducted from revenue to arrive at the net income.
- Cost: There are multiple ways to arrive at the cost of inventory, depending on the items stored. One method is to use a specific cost for each item for high-ticket items like cars or electronics. Another method is using an average cost, and a third method is first-in, first-out (FIFO). The other two methods work well for commoditized goods.
- Fair market value: FMV can be calculated in two ways: Replacement cost, which includes associated costs like freight, duties, sales taxes, and stocking fees. Net realizable value is the amount received from selling the good after including sales-related expenses like shipping and commissions.
Inventory Management
A well-managed inventory is pivotal to the success of your retail business. This requires knowing how fast or slow your stocks move. On one side, you want to take advantage of bulk order discounts; on the other, overstocking can add to costs, negating the discount. Finding the right balance between placing orders, sales volumes, and inventory restocking can be tricky without any data to refer to.
An efficient bookkeeping system not only tracks and records the movement of your stock but also allows you to set parameters of your choice to minimize losses and keep the cash flow smooth.
Cash Flow Management
After inventory, the biggest bookkeeping challenge for retailers is cash. Retail has several cash transactions, and the bookkeeper records all your income and expenses, ensuring cash in hand tallies with the entries. A store is a liability if it cannot generate enough sales to cover its fixed overheads.
A reliable bookkeeping system can keep you informed of your break-even point by managing accounts payable and receivable, inventory, sales revenue, and other financial details. Bookkeeping data can be used to predict revenue fluctuations or cash flow hiccups, giving you time to take preventive steps. Accordingly, you can plan your budget, create a cash reserve, and schedule future product launches or marketing campaigns.
A robust bookkeeping system is the backbone of a retail business, where reading between the lines is essential for staying in the race. Investing in a reliable, customizable bookkeeping and accounting software can work wonders for your retail business, giving you the time to fish for more opportunities to grow and thrive.
Contact KSSP Partners LLP in Markham to Help You with Retail Bookkeeping
Talk to a professional bookkeeper to chart out your data requirements, inventory system, and cash sales reporting systematically. At KSSP Partners LLP, our accountants and bookkeepers can provide services such as setting up a bookkeeping system, payroll, and inventory tracking. To learn more about how KSSP Partners LLP can provide you with the best accounting and bookkeeping services, contact us online or by telephone at 289-554-5997.
