Quick Summary
Scaling your eCommerce business is exciting. But imagine juggling hundreds (or if you’re fortunate, thousands) of online orders daily, each with unique SKUs, discounts, and shipping costs. Managing these financial intricacies can quickly become overwhelming. That’s why accurate bookkeeping is the foundation of profitability and informed decision-making.
eCommerce bookkeeping is more than just tracking expenses; it’s about understanding cash flow, optimizing pricing strategies, and preparing for tax season.
This blog will cover everything eCommerce experts do to streamline everything from inventory management to sales tax compliance. And, you’ll understand how to streamline your financial processes.
Bookkeeping is all about recording, organizing, and maintaining the financial transactions of a business or individual. It involves tracking every inflow and outflow of money, from sales and expenses to invoices and payments. Bookkeeping is essential for producing financial statements, managing budgets, and complying with tax regulations.
This crucial accounting task can be done manually or using an accounting software. Whichever method you opt for, follow it to the tee as bookkeeping is often the foundation for more advanced accounting tasks. It’s almost the key to maintaining financial health.
Bookkeeping, especially for a business, however big or small, involves several crucial elements that work together to provide a comprehensive financial picture. Here’s a breakdown:
This is the foundation. Every financial transaction, whether it’s a sale, purchase, expense, or payment, needs to be meticulously documented. This includes:
Once recorded, transactions need to be categorized into relevant accounts. This helps organize the financial data and makes it easier to analyze. Common categories include:
Each category has its own account in the general ledger, which is a master record of all financial transactions. Bookkeepers keep these accounts up-to-date, ensuring they accurately reflect the business’s financial position.
This involves regularly comparing internal records with external statements, such as bank statements and credit card statements. Reconciliation helps identify any discrepancies and ensures the accuracy of the bookkeeping data.
Finally, bookkeepers use the organized financial data to generate reports that provide insights into the business’s performance. These reports can include:
These key aspects of bookkeeping work together to provide a clear and accurate picture of your business’s finances.
So if you need help with setting up your eCommerce website for handling these operations effectively, our professional eCommerce development services will help.
While beginners may find bookkeeping daunting, breaking it down into manageable steps makes it much less intimidating. Here’s how you get started.
This is the foundation of your bookkeeping system. It’s a list of all the accounts your business uses to track its finances, categorized into assets, liabilities, revenue, and expenses.
For eCommerce, you’ll need specific accounts like “Sales – Online”, “Cost of Goods Sold”, “Shipping Expenses”, “Payment Processing Fees”, and “Sales Tax Payable”.
After setting up the basics, it’s time to choose the bookkeeping method. The two options available are Cash Basis and Accrual Basis.
Record every sale, including the date, customer information, product details, price, and payment method. Many eCommerce platforms integrate with bookkeeping software to automate this process.
Keep track of all your expenses, including cost of goods sold, shipping costs, marketing expenses, website fees, and any other operational costs. Categorize these expenses appropriately in your chart of accounts.
Inventory management is crucial for eCommerce. Track your inventory levels, cost of goods sold, and any inventory-related expenses. Use inventory management software or integrate your eCommerce platform with your bookkeeping system.
Sales tax can be complex for eCommerce businesses, especially if you sell across different states. Understand your sales tax obligations and collect and remit sales tax accurately. Consider using sales tax automation software to simplify this process.
Regularly compare your internal records with bank statements and credit card statements to identify any discrepancies and ensure accuracy.
Use your bookkeeping data to generate key financial reports like income statements and balance sheets. These reports provide valuable insights into your business’s financial health and performance.
If necessary, opt for premiere eCommerce bookkeeping software like QuickBooks, Xero, or FreshBooks. They can automate many bookkeeping tasks and make the process more efficient. Choose software that integrates with your eCommerce platform and other business tools.
Our eCommerce development experts can help integrate these software for seamless operation on your platform.
Choosing the best eCommerce bookkeeping software depends on your business size, complexity, and specific needs. But here are the top options available.
Pricing: Starts from $17.50 per month.
A robust solution for scaling eCommerce businesses, QuickBooks Online integrates seamlessly with popular platforms like Shopify and Amazon.
Its strength lies in its comprehensive feature set, including inventory management, sales tax automation, and detailed financial reporting. So you can gain a holistic view of your financial health as you grow.
While powerful, its complexity can be a learning curve for very small businesses.
Pricing: Starts from $2.90 per month.
Xero shines with its user-friendly interface and cloud-based accessibility, making it ideal for eCommerce entrepreneurs on the go. Its real-time bank feeds and automated reconciliation features simplify daily bookkeeping tasks.
Xero’s app marketplace offers numerous integrations to extend its functionality. So you can tailor it to your specific eCommerce needs, though some advanced features may require add-ons.
Pricing: Starts from $7.6 per month.
Known for its intuitive design and focus on invoicing, FreshBooks is a great option for eCommerce businesses that prioritize streamlined billing and client management
Its project tracking and time-tracking features can be particularly useful for businesses that offer services alongside their product sales. While its core strength is invoicing, it also offers basic accounting features, making it suitable for smaller eCommerce operations.
Pricing: Free plan available. Paid plans start from $15 per month.
A cost-effective choice for budget-conscious eCommerce businesses, Zoho Books offers a solid set of accounting features, including inventory management, order tracking, and sales tax calculation.
Its integration with other Zoho apps can be beneficial for businesses already within the Zoho ecosystem. While it may not have the same level of integrations as some competitors, it provides a valuable balance of functionality and affordability.
Pricing: Different prices for different platforms, starting from $29 per month.
Specifically designed for eCommerce, A2X simplifies the complexities of multi-channel selling. It automatically fetches sales data from platforms like Amazon, Shopify, and eBay, and accurately calculates cost of goods sold, fees, and other crucial metrics.
A2X’s focus on eCommerce accounting ensures accurate and detailed financial reporting, essential for understanding profitability across various sales channels. It’s a powerful tool, especially for high-volume sellers, but may be more specialized than some businesses require.
If you need help integrating these and other key bookkeeping software into your eCommerce website, get help from our dedicated eCommerce development company.
Even after you implement everything as intended and follow the best practices, there are some common challenges you may encounter. Here are a few.
Selling on multiple platforms like Amazon, Etsy, and your own website can make it difficult to consolidate sales data and get a clear picture of your overall revenue. Each platform has its own reporting system, and manually combining this information can be time-consuming and prone to errors.
Tracking inventory across different warehouses or sales channels can be complex, especially with fluctuating demand and multiple product variations. Knowing what you have in stock, where it is, and its cost is crucial for accurate bookkeeping and avoiding stock outs or overstocking.
eCommerce businesses often have to deal with sales tax in multiple jurisdictions, which can be a nightmare to manage. Understanding nexus laws, calculating the correct tax rates, and filing returns on time can be a significant challenge, especially as your business grows.
Handling returns and refunds efficiently is essential for customer satisfaction, but it can also complicate your bookkeeping. You need to track returned items, issue refunds, and adjust your inventory accordingly to maintain accurate financial records.
Payment processors like PayPal and Stripe charge fees for each transaction, and these fees can vary depending on the payment method and transaction volume. Keeping track of these fees and reconciling them with your sales data can be challenging.
Calculating COGS for eCommerce businesses can be tricky, especially if you have fluctuating supplier costs, complex manufacturing processes, or multiple sales channels. Accurately tracking COGS is essential for determining your profitability and making informed pricing decisions.
Reconciling your bank statements, credit card statements, and payment processor accounts can be a time-consuming and error-prone process, especially with high transaction volumes. Identifying discrepancies and ensuring accuracy is crucial for maintaining reliable financial records.
Finally, both eCommerce and bookkeeping are evolving constantly, so you will need to keep up with the new platforms, tools, and regulations for the best results.
You can also get our eCommerce consulting services to get an idea on how you can get the best results.
While not strictly required by law in many cases (depending on your business structure), it’s highly recommended. Separating your business finances from your personal finances simplifies bookkeeping, makes tax preparation easier, and provides a clearer picture of your business’s financial health.
It depends on your comfort level with accounting, the complexity of your business, and your available time. In the early stages, you might manage it yourself. However, as your business grows, especially with multi-channel sales, complex inventory, and multi-state sales tax, hiring a bookkeeper or accountant is a wise investment.
Ideally, reconcile your bank accounts, credit card statements, and payment processor accounts monthly. This helps catch errors early and ensures your financial records are accurate.
A successful eCommerce bookkeeping is essential for sustainable growth and profitability. That involves day-to-day recording of financial transactions, understanding cash flow, optimizing pricing strategies, and preparing for tax season.
For bookkeeping, you can use tools like QuickBooks, Zoho Books, A2X, etc., which can significantly streamline the processes. But make sure you don’t mix personal and business finances, don’t neglect the sales taxes and more, and keep proper documentation.
For help with bookkeeping software and other integrations on your eCommerce website, consult with our experts today!
John Niles, a dedicated Technical Consultant at BrainSpate since 2023, specializes in eCommerce. With a global perspective, he crafts insightful content on cutting-edge web development technologies, enriching the digital commerce landscape.
