If you own a retail business, you know how much work it takes to keep up with the demands of consumers. You have to make sure your products are fresh and exciting and that your brand stands out from the crowd.
However, you also have to focus on managing your company’s daily finances to ensure the business can make a profit and adhere to its tax and compliance obligations.
Like any other business, big and small retail stores cannot escape the task of bookkeeping. This refers to keeping track of all the transactions—both on the revenue and expense side—that occur throughout your daily operations. The work of a bookkeeper is to ensure that everything is accounted for and managed properly.
Bookkeeping is one of the most crucial processes in running a retail business due to the potentially high volume of daily transactions. It is also one of the easiest processes to let slip as companies often focus more on selling, branding and customer experience. If you’re looking for help handling the bookkeeping for retail businesses here in the Philippines, this article will help you to identify the key areas where many businesses can experience challenges!
What is Bookkeeping, and Why is it Important for Retail Businesses?
Bookkeeping is the process of recording all daily financial transactions of the business, including the identification and classification of sales, purchases and payments. A bookkeeper’s precise tracking of a company’s costs and earnings enables management to make smart financial decisions, improving overall cash flow management and growth opportunities within the organization.
Learning more about bookkeeping also helps to understand that it actually differs from accounting. Bookkeeping is concerned more with the details of how much money goes in and out of business and ensuring that those details are captured accurately and on a timely basis. On the other hand, accounting requires analysis and interpretation of the financial information being generated by the business via the accounting books.
When it comes to retail businesses in the Philippines, bookkeeping can pose a number of challenges for owners and internal accounting teams. Here are just some reasons why such challenges can arise:
- With the rise of eCommerce and hundreds of online selling platforms and online marketplaces enabling a much wider market, sales transactions can now come through a large number of different channels (in-store, eCommerce website, social media, Lazada, Shopee, etc.). It can be challenging to ensure transactions across all sales channels are properly validated and consolidated.
- With the rise of payment gateways, portals and e-wallets, customers now have more methods to actually make payments than ever before (cash, debit card, credit card, online banking, e-wallet, etc.). Again, matching and reconciliation of payments is now a much trickier task!
- Supplies and inventory management include settling dues with the vendor. Many retail businesses will buy their products on terms (i.e. payment at a later date) from suppliers and/or vendors. During the COVID-19 pandemic, many suppliers and vendors reduced or eliminated their payment terms. As such, bookkeepers constantly have to ensure greater vigilance when identifying which suppliers have been paid, which bills are falling due, and importantly, keep a close eye on available cash reserves and cashflow of the business.
- The Tax Code of the Philippines, as well as additional Bureau of Internal Revenue (BIR) issuances and memorandums, are quite specific about the supporting documentation that companies, including retail companies, require to ensure that their business transactions, on the sales side and on the expense side, can be properly vouched for and supported. This is particularly important during audit season. This impacts the bookkeeping activities, as bookkeepers must ensure that the correct supporting documentation is available prior to classifying or booking a transaction.
Above are just some of the challenges that can affect, and which must be considered by, bookkeepers in the Philippines when performing bookkeeping for retail companies.
Below are just some of the common areas that we have identified as creating potential issues for bookkeepers and retail companies across the Philippines and in particular, where mistakes and errors can often arise!
6 Bookkeeping Mistakes to Avoid for Retail Businesses
Keeping track of your cashflow and other financial metrics is part of your bookkeeping responsibilities, but as a business owner, it’s also vital to be aware of the common mistakes to watch out for to avoid compliance issues, or indeed, inaccurate financial data!
Below are a few bookkeeping mistakes that you should be on the lookout for in your retail business.
- Capturing every transaction
Remember that in bookkeeping, every transaction counts. Retail businesses in the Philippines must ensure that every transaction, no matter how small it might be, must be captured and booked by the business. This applies to very small products that might just cost a few pesos. It also applies to free or complementary products that a retail business might give to customers (e.g. as part of a promotion, offer or just from a goodwill or customer loyalty perspective). If the small transactions are not captured, this can really add up, resulting in discrepancies and imbalances in financial reports and statements.
- No supporting documentation
Retail businesses can often have a significant number of business and consumer transactions daily. This can differ quite significantly from other industries, for example, service industries, where sales transactions and expenses might be less frequent on a monthly basis. When it comes to customers, retail businesses must issue sales invoices for every single sales transaction to ensure proper documentation of sales under Philippine law. This can be made more efficient when a retail business utilizes a point-of-sale (POS) system. If not, however, the retail business must write and issue manual sales invoices to every single customer! This can be a challenge operationally if the process is not automated or leveraging technology (e.g. POS).
Further, when dealing with suppliers and vendors, a retail business must ensure to receive a sales invoice (purchases) and official receipts (services) for every single purchase transaction. From a compliance perspective, this is a key requirement for any business registered with the BIR and operating in the Philippines.
- Not consolidating sales data across all sales channels
Today, as a retail store, you can sell your products in more ways than one—retail businesses are no longer limited to in-store sales simply in cash! If you have a retail business, you might have many sales channels available for your customers. For example:
- In-store cash sales
- Credit card sales
- Bank transfer sales
- E-wallet sales such as Maya and GCash
- Online marketplaces such as Lazada, Shopee, Zalora and many others
- Social media sales via Facebook, Instagram, etc.
If that’s the case, you need an effective strategy to track your sales across these multiple sales channels to accurately see how much revenue your business is bringing in daily. Retail businesses also need to ensure that they are matching and reconciling payments received for all such sales at the back-end. The sales and payment validation and reconciliation process is a critical process for retail businesses with numerous sales channels as it can help you make informed decisions based on accurate underlying data about how best to grow and expand your business.
- Not using a Point-of-Sale (POS) System
While your organization can run bookkeeping tasks manually, retail businesses should always consider the benefits of using technology and applications like a point-of-sale system (POS) to help make the entire process more efficient.
A POS is a computer-based system for retail stores that records and processes transactions in real-time. It helps manage inventory and customer loyalty programs, track sales and expenses, and generate reports as needed.
Your business can be more susceptible to human errors if you don’t have POS yet. A lack of a POS can also make it difficult to understand gaps in data, fraud or theft within the business and in general, it makes it more difficult for retail businesses to get real-time and accurate financial data about the business.
- No robust inventory management process in place
One of the most important aspects of any retail business is inventory. Without a foolproof management plan, keeping up with bookkeeping transactions for inventory and inventory valuations can become more complicated and trouble creating than it should be!
We previously wrote about the topic of bookkeeping for inventory in the Philippines, so feel free to check it out!
- Trying to do it yourself
Depending on the level of financial expertise and knowledge that a founder or owner has, a common mistake that retail businesses can make is trying to do the bookkeeping on their own.
When you’re just starting, it’s easy to think that you can do your bookkeeping tasks independently. However, if you don’t have the right skills or knowledge for the job, particularly for something as intensive and precise as recording bookkeeping entries correctly, this can create larger issues, from both the compliance and financial perspective, later down the line.
Bookkeeping Best Practices for Retail Business in the Philippines
Now that you know the different bookkeeping mistakes that should be avoided, let’s look at some of the best practices you can follow for your retail business here in the Philippines.
- Use cloud financial software
Cloud financial software allows companies to access their data from anywhere, anytime, and with any device. This means business owners can easily access, manage and update financial information when needed.
- Integrate a POS system
Integrating a POS system in your retail business ensures data integrity per transaction, preventing human errors and data fraud. This technology also entails quicker payments for your clients to increase service speed and potentially improve customer experience.
- Practice internal validation and reconciliation of daily sales transactions
Another good practice is crosschecking your sales transactions internally. This means verifying each transaction to see if it matches your team’s appropriate documentation. This process ensures that all money given and received has been properly accounted for in your books.
- Utilize an inventory management system
Apart from cloud financial software, your retail business can also benefit from an inventory management system. This technology helps you skip the manual work of keeping track of every item in your store, enabling you to manage your supplies (and your time) much better.
- Partner with the experts
Whether you’re a starting entrepreneur or a seasoned business owner, you must stay on top of many things. There’s inventory, sales, employee management and a hundred other things you need to take care of.
Partnering with an expert bookkeeping firm like CloudCfo can ease the burden of managing your books and assist you with process-driven and output-focused bookkeeping services.
Consistency and Efficiency for Your Bookkeeping Needs
There are a lot of things that go into bookkeeping. Without an established bookkeeping process, your retail business can suffer great losses in this competitive industry. You want to ensure that you operate consistently and efficiently on your bookkeeping responsibilities, and the best way to do that is by partnering up with experts in the field.
CloudCfo is a cloud accounting firm that offers bookkeeping services and other finance services for retail startups and small businesses in the Philippines. We have worked with many retail companies across the country, making our team very familiar with the business model, challenges and pain points from a bookkeeping and tax compliance perspective.
Let CloudCfo be your next growth partner! Contact us today to learn more.