The pinks, here at eBay UK, were approached by a group of PowerSellers who asked if they could use the Workshop Boards to host a series of workshops around the theme of good eBay practices for businesses on eBay. Individually they are PowerSellers who have each enjoyed (through tremendous hard work and skill) business success on eBay but collectively they want to share with you some of the pointers they picked up along the way, so who were we to say no to such a kind and thoughtful offer?
Today’s is on Book Keeping and will be led by bubbawumpkin and mountcomp
Feel free to ask questions as the workshop runs but please be mindful of the fact that our two hosts will be doing their best to address many issues at the same time – such is the quick fire nature of forums! We learnt a lot from last week's session (hence why this is today being hosted on the appropriate board) but hopefully like last week it will be an informative and fun two hours.
Us pinks will also tag along for the ride and will be happy to do our best to field questions that perhaps our Pointers cannot. Finally we’d also ask you to respect the considerable time and effort that these sellers have put in. Their enthusiasm for eBay and the how to unlock the potential of the site knows no bounds and I would certainly like to start by thanking them for their efforts.
Welcome to our workshop covering the basics in registering as a business and book keeping. My name is Denise (eBay ID bubbawumpkin) and my co host today is Chris (eBay ID Mountcomp). I'm a PowerSeller and have been selling on eBay for about 3 years now. My eBay career began by selling pre-loved goods and I have expanded from there!
I was lucky enough to have experience with bookkeeping so to keep my own accounts it was simply a case of combining that knowledge with my eBay requirements. I was asked for help by other eBay PowerSellers when they found out I had experience with accounts and progressed to keeping their accounts for them! DEE :>)
Hi, Chris here. I'm a PowerSeller, Trading Assistant and eBay eDucational Specialist. I trade full time on eBay and keep my own accounts in conjunction with my accountant. I'm registered as a sole trader as well as VAT registered.
This workshop is called BOOK KEEPING, TAX & BUSINESS REGISTRATION and is designed to give an overview of the proceedures of accounting, along with information on how to register as a business and where to go for advice. Every seller will have different circumstances - we can not give out specific advice to individuals only professionals can do that!! If you have any specific questions concerning your situation then please consult an ACCOUNTANT or talk to REVENUE & CUSTOMS. We will discuss
1. Business Registration 2. Business Banking 3. The Books 4. Information to Record 5. Book Keeping Procedures 6. Accounting Frequency 7. Profitability Reports 8. Cashflow 9. VAT Registration 10. More Help and Advice
Feel free to ask any questions you may have but remember we are not tax advisors and can not advise on specific circumstances. Most of the information is relevant to sole traders - if you operate a limited company then some information may not be relevant.
Please take a minute to read each section before asking a question as you may find it has already been answered. DEE :>)
Many people are unsure as to whether they should register as a business, or if they actually qualify as a business or not. A very simple test is:- If you buy items to re-sell then you are a business and need to register as a business.
This does not necessarily mean you will have a tax liability but if you are re-selling then you are running a business. It has nothing to do with how much money you are making or how many items you are selling. It has to do purely and simply with buying to resell, regardless of what that item is.
You also need to understand if you are self employed as regards your business (http://www.hmrc.gov.uk/startingup/selfempl.htm). If you are a part time eBayer you may be employed in your main job and self employed as an eBayer. Some eBayers are actually employed by their company to handle the company's eBay trade and their company should handle all tax affairs in those circumstances.
It is important to register as a Business on time as there are financial penalties in the form of fines and interest on any tax owed for late registration.
So how do you register as a business and who do you register with?
Firstly the Inland Revenue - you can either telephone them on 08459 15 45 15 or download a form from http://www.hmrc.gov.uk/startingup/register.htm. There are a few questions you'll be asked regarding your business and they'll register you for tax and national insurance purposes. If you have an accountant they can handle all the registration requirements for you and all you'll have to do is a couple of signatures! There is a £100 penalty for failing to register within three months of starting your business - the Inland Revenue does NOT want to apply this penalty, it's intended to encourage early registration!
The second thing you should do is to register your eBay account as a Business account. This signifies to buyers that they are dealing with a business and not a personal seller. As businesses have certain responsibilities such accepting returns this in conjunction with your feedback can reassure buyers. You can register as a business on eBay at http://cgi4.ebay.co.uk/ws/eBayISAPI.dll?ChangeRegistrationAccountType
You become a business when you buy to sell, you need to register with Revenue and Customs, and should change your eBay registration to a Business User DEE :>)
patterns*2*sew - Do you have to have an accountant?
You don't have to have an accountant - but we'd highly recommend that you do. Firstly there is a big difference between 'Book Keeping' and Accounting. An Accountant can prepare a balance sheet for you, prepare your tax return, act as an intermediary between you and Revenue and Customs and of course is a great business advisor and should be able to recommend ways to drive your business forward. Many eBayers seem to view accountants as book keepers and simply hand over a pile of receipts and printouts of their sales data. By doing your own book keeping you can reduce your accountants fees and of course you should maximise their input as one of your key business advisors!
deuterosophia -I don't think my earnings justify an accountant yet but I just don't know where to start!
One look at a tax return was enough to convince me that I needed an accountant! However hopefully today we'll give you enough information today to keep your own books. If you go to an accountant at the end of the year purely to have a balance sheet produced from your books and have your tax return prepared the fees will be much lower. Of course you can complete your own tax return - but a good accountant will save you more then they cost! Don't forget if you do your own book keeping you can assess how your business is performing without waiting until the end of the financial year!
Many of you may have started on eBay and used your normal bank account for both personal and eBay transactions. You should however separate your business funds from your personal funds and run separate accounts.
Some people simply open a second current account to use for business purposes, however there are advantage of having a business account. Firstly it gives you access to business advice and help with running your business successfully. You will usually have access to a Business Account Manager who will assist with advice on your banking. Also if in the future you need to raise finance in the form of a business loan your bank will expect you to have a track record with a business account to show you are financially sound.
It is important to remember though that business accounts are not usually free. There may be an initial period ( usually 12 months) where your bank will give you free banking, from then on you will be charged. Each transaction such as deposits and withdrawls will attract a charge. Remember though all charges are tax deductible!
Charges vary from bank to bank, so when you investigate business accounts remember to look to check costs after the free period ends. Some business banking accounts will be free forever, but they normally have limits on the amount of transactions you require and sometimes conditions like online banking only. You probably won't get a Business Account Manager either
You should separate your business finances from personal with a Business Bank account
deuterosophia - My business is fairly small, is it worth opening a business account?
Yes, yes and yes! Keep a seperate account so that your business funds are segmented from your personal funds. That way you won't be tempted to use your profits on personal spending and suddenly find your short for business expenses!
'The Books' simply refers to the financial records of a business. How you keep your "Books" take can take different forms, you may opt to use an actual book, many of you will probably prefer to use an electronic form probably a spreadsheet.
"The Books" is a term used to describe the keeping of accounts and refers to the records of your business. In the next section we'll look what records you need to keep and then how to keep them.
Remember if you fail to keep meticulous records you may end up paying too much tax! It's easy to track sales from money coming in, but if you lose your purchase invoices and forget to include expenses you may have paid cash for then it will appear you made more profit than you did!
bodybars - where can i find a bookeeper cus im useless at doing my accounts ?
Try your local papers, also talk to an accountant and ask who they recommend. We will be giving you some tips on doing your own book keeping however with ways to make it simple and easy
drstevew - It certainly does - especially when you reconcile (check) you payments and deposits against your bank account and don't have to filter out personal income and expenditure!
It is important to keep accurate records and part of that is knowing the information you need to keep. The simple answer is every financial transaction associated with your business - even if you are not able to claim 100% of that expense. An example would be your home telephone bill if you make business calls on it.
There are two main categories of your records:- Purchases - Anything that costs you money! (e.g. Buying Stock, Postage, Packaging Materials, Office Rent, IT Equipment) Sales - Money coming into the business (e.g. from PayPal/Nochex, Bank Transfers, Cheques, Postal Orders, Cash
You also need to keep all your bank and credit card statements for both Business and Personal accounts!
It is important to be able to cross reference everything. If you have a sale on eBay you need to be able to find it in your accounts and vice versa. If you purchase some stock for sale you need to be able to show when it was paid for. People have different methods for this - some print out every eBay sale, but if you're handling a large number of transactions that's a lot of paper! Other 'Print' their sales to acrobat .pdf files which can be stored electronically. Others choose to print their eBay invoices which summerise each sale (but don't include the postage element so make sure you enter that into your accounts also!) Certain selling tools such as SMP can also produce reports for you.
Some of my items come as job lots or bags full, paid on the same unitemised receipt, how do I cross reference each item I sell to a particular receipt?
If you save paper (or electronic) print outs of each sale you will have all the information you need. If not as a minimum you need:-
Date of sale
References (One or more of:- eBay item number, Paypal Transaction ID, SMP invoice number, Buyers ID)
Cost of item
Cost of post and packaging
Total sale Price
Payment method (paypal, cheque, bank transfer etc)
You will also need to record expenses which may not involve payments, for instance if you use your car for business (trips to the post office) or ride a bike (maybe to see your accountant) you will need to record each trip you make and the distance traveled in order to claim allowances. You may also be able to claim for shared bills (eg use of your home, household bills etc but we'd recommend you seek professional advice on what you can and can't reasonably claim). Finally don't forget to record eBay fees and PayPal fees - PayPal fees especially aren't invoiced monthly so you do need to record them as well!
scouse_2 Some of my items come as job lots or bags full, paid on the same unitemised receipt, how do I cross reference each item I sell to a particular receipt?
That's a great question - the important thing to realise is that you don't have to work your exact profit on each item. Simple record your purchase in your books, divide the cost of the job lot by the number of items to give you an averge cost when you come to stock take and value your stock, and of course record your sales as they occur. If you have lots of the same item from different job lots give them an average cost for stock valuation.
Revenue and Customs expect you to keep all records for six years - if they have a query they will expect you to have this information! You may think you are only doing half a dozen sales a week but even this in six years adds up to a couple of thousand transactions and there is no way you can remember what happened six years later without good records.
If in doubt record every financial transaction! In the next section we'll look at how to save this information.
josordoni - Do accounting programmes like Sage make life easier or more difficult?
If you are already familiar with an accounting program then by all means use it. However many eBayers simply do their own book keeping either on paper or electronically. Have a look at the guides to accompany this workshop as you may be surprised how easy it can be if you're organised. However it is likely a time will come when your business grows that an accounts program (even with the time to learn it) will start to save you time and money. If you have several eBay trading User ID's, your own website, perhaps a bricks'n'mortar business and are VAT registered book keeping does become more complex. Once set up, an accounts program can keep track of the various VAT rates for each of your products and also produce comprehensive reporting and invoicing to make your life easier.
Work is also underway on both Sage and Quickbooks to intergrate them with eBay which could make a more compelling arguement to adopt an accounts package earlier rather than waiting until it's a necessity!
scouse_2 So long as you can value your stock at the end of the financial year you shouldn't have too many problems. Of course it's important to know your profit on each item so that you know if stocking that item is viable. However you can record purchases and sales seperately as we'll see in the next section
The secret of successful book keeping is to keep it simple and find a way that works best for you but includes all the required information. There are a number of options such as an actual Book, a spreadsheet such as MS Excel, or accounts packages such as Sage or Quickbooks. However whichever method you choose the information you need to record is the same! Whichever method you choose if you are in any doubt seek professional assistance as it's a lot easier to get it right at the start, than to try and redo your accounts at the end of the year and try to correct them at that stage!
purchasing*id - What if you buy things from, say, a car boot to resell? How do you present the cost of those items to your accountant or the tax man?
Ask the person you buy from for a receipt. Of course this may not always be possible so when you're buying at boot sales carry your own receipt book and record your purchase, the cost, the venue and the date. Accountants and HMRC are aware that you may not always have an invoice - but keep meticulous records (at the time of purchase) so that you can justify your costs should you be asked.
Paper Records There is no need to buy an expensive accounts book, a simple notebook or three column cashbook will suffice. Payments can be recorded daily and you simply create columns for the information you need to keep
Spreadsheet Records Spreadsheets may sound complicated but they are simply an electronic version of your paper records. You will still have columns with the same headings, and still record exactly the same information. The big advantage is that keeping electronic records allow you to total the columns automatically instead of having to add them up manually.
For either Paper or Spreadsheet records keep a separate page for your Sales Ledger (Payments to you) and Purchase Ledger (Payments to suppliers). For a physical book use one side for sales and the other for purchases - with a spreadsheet create separate worksheets for sales and purchases. Have separate sheets (Maybe the back of the book or a third worksheet) to record mileage etc.
towatessa "A good accountant will save you more than they cost".
If your liablity is only small, for example £100, how would this save me more than the fees they cost, which is generally £150 upwards?
You need to make your own assessment - it does depend on your individual circumstances but if you are only making a small amount you probably have other sources of income as well. If (as in your example) you only make £100 profit in a year you may find your accountant can set additional expenses (like use of your home for trading) and actually make your profit into a loss. This could reduce your tax liability for income from a full time job.
Of course we hope that pretty soon you'll be making a more substantial income from eBay with higher profits!
rainbowcraft - Can you offset accountancy costs against tax?
Absolutely - as can any legitimate business expense! Record them in your costs and they'll be deducted from your profit figure. If you're VAT registered you can also claim the VAT element back on your VAT return as well!
If you choose to use an accounts package unless you are already familiar with it we'd recommend you seek training to help set it up. You may find your accountant will recommend a package and help you get started or the company supplying the program will assist. Don't simply purchase accounts software and expect it to work 'out of the box', you will need to customise it to your requirements.
Regardless of the method you choose to keep your accounts you will also need to save paperwork. This may include all receipts and invoices for expenses, and if you print each sales record those as well! File them in DATE ORDER, if they don't have a reference you have entered into your accounts number them. Either keep envelopes for each time period, or simply use a ringback folder and hole punch. The important thing is if your accountant or the Revenue ask to see an invoice that you can locate it easily.
Finally remember you need to keep records for six years. Make sure you back up your electronic records and keep a back up at a second location. If your computer crashes or your laptop is stolen and you lose your accounts you will still be liable to pay tax. In the worst case Revenue and Customs will simply make an assessment of the tax you owe!
*jess** - I can work out sales, expenses etc, but what do I do about unsold stock? And how do I record it? Should I list it at what I paid for it, or what it is listed (or will be listed) at?
That's a complex question.... at the end of the tax year you need to value your stock (so do a stock take). Normally the value that you paid for it would be recorded on your balance sheet at the end of the financial year and would count towards your profits.
Some stock however may be returns/damaged, on some the price may have fallen since you purchased it, some may simply have been a bad purchase and is unsellable. You need to decide which of your stock falls into this category and then your accountant will be able to help you "write it down" or "write it off". You may also wish to consider donating dead stock to a charity and again speak to your accountant about this.
There is no simple answer to how often you update your accounts but little and often is the key! The people that have most problems with their accounts are those that update them the most infrequently! The very worst thing you can do is leave it until the end of the tax year as it will be almost impossible to track your sales and purchases a year down the line!
Ideally you will update your records at least every time you despatch items. We'd recommend daily account keeping for sales as a minimum, especially if you have a high number of transactions. You are likely to have fewer purchases but again update your purchase ledger at least weekly. Mileage records and other travel again update daily while you can remember!
Many people have a rule that nothing ships until the sale is entered into their accounts. There is a sense of urgency to ship items once paid, and forcing yourself to update your accounts first is a great way to ensure you stay ahead of the game. As you will have to prepare your packing slips and address labels prior to picking and packing your sales this is an ideal time to take a few minutes to update your books!
Remember a few minutes daily can save many hours of work later. Get into the habit of keeping your accounts up to date and you'll be amazed how little time they take!
deuterosophia - I am hoping this workshop will help stop that feeling of dread when I do my monthly accounts I print off all my sales and costs and have two boxes of paperwork, going through it every month is a nightmare, is there an easier way?
Try to do your book keeping daily or at least weekly and it'll never be a huge job. Little and often is best! We've produced a guide to show you a simple way of setting up your book keeping - we'll post a link to it at the end of the workshop
Keeping up to date records for your business allows you to assess your profitability and whether your business is viable. Each month you should look at your income and expenditure which will highlight areas with hidden costs.
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