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Running a retail business requires a lot of hard work, dedication, and attention to detail. One of the most important aspects of managing a retail business is ensuring that your finances are in order. Proper accounting is critical to the success of any retail business, as it provides accurate and timely information about the business’s financial health.

While some retail business owners may attempt to manage their finances on their own, professional accounting services can provide a range of benefits that can help to streamline operations, increase profitability, and ensure compliance with tax laws and other financial regulations. In this article, we will discuss the reasons every retail business needs retail accounting services.

Business finance man calculating budget numbers, Invoices and financial adviser working.

From tracking sales and expenses to managing inventory and taxes, accurate retail accounting is essential for informed decision-making, compliance with financial regulations, and achieving long-term financial stability. Let’s delve into the significance of actual accounting practices in the retail industry and the benefits of hiring professional retail accounting services to ensure smooth financial operations for your retail business.

Common Pitfalls in retail accounting

A retail organization’s financial stability and success may need to improve significantly from common retail accounting mistakes.

1. Sales and revenue tracking issues:

Failing to record all sales and expenses can cause distorted financial statements, misleading financial ratios, and incorrect tax reporting.

2. Cash flow management issues:

Cash flow management issues, inventory management and tracking issues, sales and revenue tracking issues, and tax and compliance issues are common challenges retail businesses face in their accounting practices. These issues may arise due to a variety of reasons, such as slow-paying customers, unexpected expenses, or mismanagement of funds. Cash flow problems can result in a range of negative consequences, including an inability to pay bills or employees, missed opportunities for growth, and damage to a company’s credit rating.

3. Inventory management and tracking issues:

Accurate inventory management is critical in the retail industry to ensure optimal stock levels, prevent stockouts or overstocking, and maintain profitability. However, tracking and managing inventory can be challenging, especially in businesses with large or complex inventory systems. Issues such as inaccurate tracking of inventory levels, stock discrepancies, and obsolete or slow-moving inventory can cause stockouts, overstocking, decreased sales, increased carrying costs, and decreased profitability.

4. Tax and compliance issues:

A crucial component of retail accounting is tax compliance. Retail enterprises must abide by complicated tax requirements and pay various taxes, including sales, payroll, and income taxes. Penalties, fines, and legal problems may occur from problems including erroneous tax calculations, inability to collect and return the proper taxes, insufficient record-keeping for tax, and non-compliance with tax legislation.

Benefits Of Professional Retail Accounting Services

Professional retail accounting services can offer several benefits to businesses.

1. Expertise in industry-specific accounting practices:

Retail accounting can be complex and require specialized knowledge of industry-specific accounting practices. Professional accounting services with experience in the retail industry can provide expertise in inventory accounting, cost of goods sold (COGS) calculation, sales and revenue recognition, and cash flow management. This specialized knowledge can help ensure accurate financial reporting and compliance with industry-specific accounting regulations, resulting in more reliable financial statements.

2. Enhanced accuracy and efficiency:

Professional retail accounting services can improve the accuracy and efficiency of accounting processes. Skilled accountants can record and track financial transactions, reconcile accounts, and generate financial reports. This can minimize errors, reduce the risk of financial misstatements, and improve the overall efficiency of the accounting function. Accurate accounting practices can help businesses make informed decisions based on reliable financial information.

How Professional Accounting Services Can Help Retail Businesses

Professional accounting for retail businesses can play a crucial role in supporting the financial success of retail businesses. With their expertise in industry-specific accounting practices, accuracy and efficiency in financial record keeping, and ability to provide valuable financial insights, accounting services tailored for the retail sector can be a game-changer for businesses in this competitive industry.

1. Specialized knowledge of retail accounting practices:

Retail accounting involves unique challenges and requirements, such as inventory accounting, cost of goods sold (COGS) calculations, and sales and revenue recognition. Professional accounting services with experience in retail accounting are well-versed in these specialized practices, ensuring accurate and compliant financial reporting. This expertise can help retail businesses navigate complex accounting rules and regulations specific to the industry, mitigating risks of financial misstatements and non-compliance.

2. Improved financial analysis and decision-making:

Professional accounting services can provide retail businesses with valuable financial insights through financial analysis. These insights can help to formulate growth strategies and make strategic business decisions.

3. Time and cost savings:

Outsourcing accounting services can save retail businesses time and money. Retail business owners can focus on their core operations and growth strategies while leaving the accounting tasks to the experts. By leveraging the expertise of professional accounting services, retail businesses can reduce the risk of errors, streamline financial processes, and optimize costs associated with in-house accounting staff and systems.

Choosing the right retail accounting service

Selecting the right accounting service provider is crucial for the financial success of any retail business.

1. Expertise in retail accounting:

Look for accounting service providers with experience and expertise in retail accounting. Retail accounting involves unique challenges and requirements, such as inventory accounting, cost of goods sold (COGS) calculations, and sales and revenue recognition. Ensure that the accounting service provider deeply understands these specialized practices and can provide tailored solutions for your retail business.

2. Industry knowledge:

Consider whether the accounting service provider knows the retail industry, including trends, regulations, and best practices. This industry knowledge can be valuable in providing relevant financial insights and guidance specific to the retail sector.

3. Services offered:

Evaluate the range of services the accounting service provider offers. Besides traditional bookkeeping and financial reporting, consider whether they provide additional services such as tax planning and compliance, financial analysis, payroll processing, and other relevant services that benefit your retail business.

4. Technology and tools used:

Consider the technology and tools used by the accounting service provider. In today’s digital era, advanced accounting software and tools can significantly streamline financial processes and improve accuracy. Ensure that the accounting service provider uses up-to-date technology that aligns with the needs of your retail business.

Questions to Ask:

1. What experience do you have in retail accounting?

2. What technology and tools do you use for accounting?

3. Can you provide references or testimonials from retail clients you have served?

4. What are your pricing and contract terms?

Conclusion

Accurate retail accounting is crucial for the success and sustainability of retail businesses. It helps ensure reliable financial reporting, compliance with industry-specific accounting regulations, and informed decision-making.

Partnering with a reputable accounting service provider specializing in retail accounting can significantly benefit retail businesses. By outsourcing accounting functions to professionals with industry-specific knowledge and expertise, businesses can minimize accounting pitfalls, improve financial analysis and decision-making, and maintain compliance with tax regulations. Retail businesses must prioritize accurate retail accounting as a strategic investment for long-term success.

Author’s Bio

Jessica Flores is an accomplished blogger with several years of experience in the accounting and bookkeeping industry. With her extensive knowledge and expertise, she is an accounting specialist at a leading outsourced accounting firm Cogneesol. Throughout her career, she has developed a keen interest in sharing valuable insights related to accounting with her engaging and informative write-ups.

2020 was an eventful year for business payments. We saw expansive leaps in digitization, accompanied by new challenges. Remote work forced accounts payable departments to pay more suppliers electronically, primarily by ACH or direct deposit. In many cases, companies began making ACH payments before they could adequately secure remote networks and environments and without new protocols and procedures to ensure the secure handling of supplier bank account information. The rush to pay suppliers electronically in the new remote environment exposed them to various fraud schemes, targeting ACH payments. While ACH fraud was already on the rise, cybercriminals exploited the pandemic and the rapid shift away from paper check with greater voracity than ever.

Knowing the increased risk with ACH payments is critical when you receive requests to change bank account information. According to our internal data, these requests are common, with suppliers changing bank accounts roughly every four years. But change requests are also the most common avenue for fraud, specifically VEC (Vendor Email Compromise). In this type of attack, criminals hack into supplier systems, monitor invoice flow, identify a potential weak spot among the supplier’s customers and then reach out to someone in accounts payable to request a bank account update. Often, they time this sort of change just ahead of a large payment. If successful, they route the payment to an account they’ve set up only to close it once they receive the funds.

AP teams stay vigilant when they receive requests to change banking information. But really, they always need to handle bank account data securely. If this data is intercepted, it gives fraudsters fuel to make their schemes more credible. IT departments need to secure company networks and environments. AP departments need to have stringent, repeatable processes for collecting, validating, and storing the information.

Collecting the data

Start with identifying the information you need to store. In addition to the routing, account numbers, and other remittance information, you may want to add security questions or other uniquely identifying information.

This information should never be transmitted via email, which is extremely unsafe. It’s shocking how open people are with the information they share using that communication method. There’s a lot of naivete surrounding the notion of business email compromise, or BEC. The FBI documented over $26 billion in reported losses from BECs between June 2016 and July 2019. According to the 2020 AFP Payments and Fraud Control Survey Report, BEC schemes were the most common type of fraud attack last year, with 75 percent of organizations experiencing an attack and 54 percent reporting financial losses.

With such attacks on the rise, banking data really should be sent via a secure portal or encrypted email. It’s tempting—especially at the beginning of a new supplier relationship—to want to extend trust and make enabling them for payment fast and easy. Don’t do it. Safety comes first. Make it clear to your supplier that you’re doing this to protect their company and yours. They should understand and appreciate that—it’s a yellow flag if you encounter pushback on that request. While it’s uncommon for Vendor Email Compromise (a subset of BECs) to occur during initial onboarding, requests to make exceptions to processes (especially if combined with a sense of urgency) are hallmarks of phishing or fraud attempts. Make sure your team is well trained, so alarm bells go off in that scenario.

It’s not just during the supplier enablement process that this information needs to be protected. Suppliers routinely send invoices that include bank routing and account information via email. Again, this is well-intentioned—the aim is to make it easier for the customer to pay them, but it’s also risky. Using a secure portal is the best solution.

When accepting sensitive information over the phone, be sure to have phone validation procedures in place to ensure the person you’re talking to is an authorized representative of the supplier.

Validating and securing

When you’re setting up a relationship with the supplier for the first time, AP should work with procurement to validate all the contract information. They may also want to use a third-party tool or service provider that connects into banking networks to validate and authenticate account identity and ownership. There are many such tools on the market.

If you’re switching an existing supplier from check to ACH, you may already have some visibility into their banking data as another way you can cross-check their information before making changes.

Once validated, information must be securely stored. Where housed on paper, companies should implement a level of physical protection such as locked in a file cabinet, but we know files are often kept in a folder on someone’s desk or—in the age of remote work—someone’s car or home. Many companies keep supplier data in spreadsheets. If someone were to intercept that information, it would be in peril.

When storing supplier banking information in an ERP system, ensure access is tightly controlled through strict permissions workflows and frequent audits of current user activity.

As traditionally check-heavy companies rush to meet the demands of electronic payments, they may miss critical steps necessary to safeguard supplier banking data and should partner with their IT, Security and Compliance teams to build a robust system of access, monitoring, and review. Outsourcing the responsibility to a payment provider is another consideration to make where resources and skillset are limited.

With the pace of change and new security threats upon us, focus on worse-case scenarios may leave you feeling helpless and overwhelmed. Preparation is key to successfully managing change. Identifying these scenarios will help you predict and prepare for the challenges and pitfalls ahead as you safely transform your accounts payable flow.

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Angela Anastasakis is the SVP of Operations and Customer Success for Nvoicepay, a FLEETCOR Company. She has more than 30 years of leadership experience in operations and product support. At Nvoicepay, Angela has been instrumental in leading Operations through rapid growth, while maintaining their 98% support satisfaction rating through outstanding service.

Why Every Retail Business Needs Professional Accounting Services