Retail is about record keeping
There are many different types of retail operations, from ecommerce and mail order to direct retail, pop-up shops, catalogues and more. As a small business owner you might use more than one type, depending on the products you're selling.
But as any retailer knows, success involves more than just exchanging goods for money. You need to understand product merchandising, advertising and marketing, stock control, customer service, market research, supplier negotiation and more.
Retail can be seasonal too, with peaks in the run-up to Christmas and the back-to-school periods. The best retailers think carefully about how – and when – their products fit into consumers' lifestyles. They use that knowledge to market their products.
And then there's the accounts. Cash flow, payroll, taxes, ledgers and so on, all have to be tracked carefully. With money coming in and going out all the time, you won’t want to let anything slip through the cracks.
All of this means that you can't run a successful retail business without keeping detailed records. That’s where good quality accounting software can help.
Make a plan before you start
It can be tempting to dive straight into a new retail business, especially if you think you've found a gap in the market. But it's sensible to plan your business first. In particular, you should:
- Choose your company structure
Different businesses have different legal structures, with pros and cons to each. Read our guide 'When you should hire an accountant', to learn which business structure might suit you.
- Choose your business location
Will you have a physical store, an online-only store, or a placement – where you advertise your products as part of a site such as eBay or Amazon? There are many options. Bear in mind that most physical stores these days need an online presence too. Without one you'll be missing out on potential customers.
- Think about funding
Carefully calculate how much capital you will need to start your business. How will you get that money? Read our 'Complete guide to financing your business', for some of the options available to you, and use good quality accounting software to make forecasts and predictions.
- Think about inventory management
This is one of the biggest challenges in retail. Get it wrong and you'll either be left with lots of unsold stock, or run out of the products your customers want to buy. Read our guide to retail POS systems for help and advice.
These are just a few of the points you should include in your plan. Talk to a business advisor about more detailed planning, especially when it comes to tax and payroll laws in your part of the world.
How retail accounting software can help
Accounting software isn't just for accounts. Today's accounting software can be connected to lots of other apps. That gives you potentially hundreds of joined-up tools to help you manage your retail business.
When deciding which accounting software to buy, here are a few points to consider:
- Was it designed with retail in mind?
Does the software work well for retailers? Read the online forums and specifications carefully.
Does it have multiple access levels?
It's best to have different levels of permissions for owners, managers and others with special authorisation. You won't want everyone on the shop floor having full access to your accounts.
Can it record transactions and manage payroll?
Nearly all accounting software handles transactions, but payroll might only be available as an upgrade. Check before you buy.
Can it track inventory?
Some do, others don't but can be seamlessly linked to add-on apps that can. Do your research, as this is a useful feature for retailers.
Is it cloud-based?
If so, it'll give you access to your accounts from anywhere at any time, lower support costs, automatic backup and easy connection to other apps.
Is it scalable and extensible?
Scalable means it will grow as your company does, letting you add new users when you need to. Extensible means you can add new features to the software just buy purchasing new add-on business apps.
Whichever retail accounting software you choose, be sure to keep all your important information safely archived. This includes sales records, loan statements, bank information and tax data. You'll need it all for your tax returns, and also if your business is ever audited.
Understand retail definitions
When working in retail you'll come across some new terminology – and it can seem confusing at first. However, once you learn the meanings, they do make sense. Some of the terms you'll see might include:
Accrual accounting method
Cash accounting method
FIFO (First In, First Out) inventory tracking
LIFO (Last In, First Out) inventory tracking
Weighted average of cost
Retail inventory method.
These are accounting terms. You can find more detail on them in our guide to inventory. Ask your accountant or business advisor for clarification on anything you don't understand.
12 top tips for successful retail accounting
Using your retail accounting software regularly, as part of your daily business operations, will help you get the best out of it. Here are some practical tips:
Keep a record of every transaction
Every sale, every purchase, every staff payment, every tax bill. Record them all, to build up a clear picture of your business.
Check and reconcile
Check all transactions regularly (ideally once a day) and make sure the numbers add up. Either do this yourself or have a bookkeeper do it for you.
Review the difference between money coming in and money going out
Because that difference is your profit or loss. Keep a close eye on this to see how your business is performing on a day-to-day basis.
Collect all required tax information
And make backups. Check local laws for the information you're required to hold for tax and payroll purposes. Make sure it's stored securely.
Ensure ledgers are properly defined
Set up the right ledgers in your accounting software – ask an accountant to help here if necessary.
Keep ledgers updated
Move your receipts from sales and purchases into your ledger. Do this every day if possible, or at least three times a week. You won’t want to fall behind, especially if business is booming.
Get an outside perspective
Have your financial advisor or accountant review your ledger once a week or once a month. It’s important to identify discrepancies or a shortage of cash flow as soon as possible.
Get regular reports
Leverage your accounting software's powerful features. The best retail accounting software can generate useful reports to help you understand how your business is running.
Keep a paper trail
It's important to keep paperwork such as receipts and invoices, along with payment notifications for inventory or payroll.
Keep business separate from personal
Have separate bank accounts for business and personal finances. Consider setting up separate bank accounts for expenses and incoming revenue too. That may seem like extra hassle, but it could make it easier to notice discrepancies.
Remember to file tax returns
Keep on top of government deadlines for tax returns, employee tax returns and all other necessary reporting. See government websites for key dates.
Watch your cash flow
Set up processes and controls to check your cash flow on a frequent basis. Share this information with a trusted advisor, such as your accountant. Don't let a cash shortage take you by surprise.
Keep up with these trends
The retail business space is changing fast, partly due to cloud-connected smartphones and tablets. Your customers now expect more from their retail experience, and are willing to shop around in order to get it.
So if you're going to keep up with customer demand, you'll need to keep up to date. Here are some of the trends that are likely to affect retail businesses in the near future:
Mobile web and app presence
People are buying using their mobile devices. That means less screen space for your web presence, so make sure your website has a mobile version – and perhaps an app too.
Apps for the retailer
In some countries there are mobile POS apps available that can connect to your accounting software.
Customers shopping with GPS
People are looking for shops and businesses in your area. Make sure your shop is listed on the main geo-location websites and apps.
Self-checkout becoming more common
It's already popular with supermarkets because it lowers staff costs. That's likely to spread to smaller retail businesses over time.
No more clerk behind the counter
Checkout staff will be able to walk around the store and let customers buy on the spot, thanks to mobile POS tools.
Price comparisons mean savvy customers
If you don't keep your pricing competitive, you'll lose out. Customer pricing knowledge is increasing fast thanks to comparison apps and websites.
Pop-up shops will spread
Food carts and 'Christmas shops' were just the start. The short-term pop-up shop concept is likely to spread to other retail areas, especially in shopping malls.
Technology is an enabler for the consumer
They can read reviews, watch videos, find recommendations from their friends, and much more. Make sure you go where they go.
Don't get left behind
It's not just consumers who are benefiting from technology. Retailers are too – at least the smart ones. With the right software you can not only track your inventory and costs, but also plug into hundreds of other add-ons and apps to manage specific parts of your business.
Technology is also enabling retailers to manage their bottom line better. With all the numbers at your fingertips, good accounting software can draw up reports and presentations that will help you see exactly how your business is performing.
So don't get left behind. The right retail accounting software will help you keep your finger on the pulse of your business and meet your customers' ever-changing needs.