Comprehensive Bookkeeping Guide for eCommerce Businesses

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As an eCommerce business owner, you know how vital bookkeeping is to your company's overall success. It gives you the knowledge and power to make wise decisions using solid analysis, and it allows you to forecast your future, even though it can be tedious and time-consuming. We have taken a deep dive into eCommerce bookkeeping and have strategies and tools for bookkeeping success in e-commerce.

This comprehensive bookkeeping guide for e-commerce businesses has all the key information to get you started. The next post in our series on e-commerce businesses covers KPIs every e-commerce business should track. Our third post for e-commerce businesses offers guidance on how to reduce operating expenses.

1. Choose cloud-based bookkeeping software

Using a cloud-based bookkeeping software is one of the best choices you can make for your business. Not only does it offer more flexibility and reliability than traditional desktop software, but it offers a whole range of other benefits as well:

It is easily accessible - Working on the cloud means that you can access your financial data anytime, from anywhere. You can also provide access to other team members or your accountants, making sharing important data much more effortless and allowing you to work in real-time all the time.
It is secure - Using the cloud means that your data has been backed up and encrypted with the highest level of security. Your data is always kept safe and secure in the cloud.
It reduces paperwork - If your dream is to become a paperless business, using the cloud can help. Not only will it eliminate waste, but the cloud also makes searching for specific data much more accessible than shuffling through piles of paperwork and reports.
Information is easy to integrate—When using the cloud, it is effortless to integrate data from other bookkeeping tools like your eCommerce or payment platform. In most cases, this data sharing can be set up to be completely automated. This eliminates the amount of work you must do and simplifies the process, leaving less room for error and keeping your records up-to-date.

2. Outsource your bookkeeping

Many business owners spend too much time maintaining their own books. Since most don’t specialize in accounting and bookkeeping, they usually aren’t very good at it. In some instances, they may even make critical mistakes. Business owners are also exceptionally busy running their businesses, and bookkeeping tasks are often neglected. This is where the benefits of outsourcing enter the conversation.

Outsourcing is an excellent option for eCommerce business owners. It usually costs significantly less than hiring a full-time, in-house bookkeeper, helping you save money in the long run.

Outsourcing allows you to utilize help from an expert, leaving your essential financials in capable hands and freeing up your time to focus on more important things like increasing your sales and growing your business.

3. Capture your receipts and documents

Nothing is more tedious than keeping track of receipts and other documents, but Dext Prepare can help with this burden. Dext Prepare allows you to take photos of your receipts with your smartphone, create an appropriate transaction record, and immediately upload the record directly to your online accounting program. With such a simple process, your day-to-day expenses become extremely simple to manage.

4. Automate your payments

Most of us already take advantage of automatic bill payments for utility bills in our everyday lives. Why not reap the same benefits of this service when it comes to our business? Paying our suppliers can be made into a stress-free and straightforward process when we get assistance from Plooto. This platform has been specifically designed to handle all your accounts payable and receivable with an automated process that saves you considerable time and hassle.

5. Evaluate your inventory practices

Keeping things simple, especially regarding your inventory practices, can make a substantial difference in how smoothly your bookkeeping process goes. When evaluating your inventory, try to keep the following in mind:

Keep the minimum amount of unsold inventory on hand at all times. Having an excess inventory takes up space and locks up your capital.
Get a handle on your inventory. Using a reliable inventory management system will give you current information on your stock levels and the status of your orders.
Choose an appropriate target product turnover rate, an ideal inventory system (FIFO vs. LIFO), and a preferred depreciation schedule that adequately meets the needs of your business. These can all have a significant impact on your bottom line. To operate as efficiently as possible, take a look at how other firms in your industry deal with these issues and replicate their practices.

6. Manage your sales tax

Worrying about sales tax and tax deadlines can be an issue for any eCommerce business owner. However, tax time can be a much simpler process with a bit of preplanning and some good organizational skills.

Keep a detailed log of all products for which taxes must be collected and remitted and those that are exempt.
Ensure you know which government agency you must remit the tax to. This will vary depending on your business location and chosen industry.
Keep a separate account for all collected sales tax.

Bookkeeping is a vital part of any eCommerce business. Keeping all processes streamlined and organized can help you stay focused on the most important thing — your company's success. Finding ways to optimize all aspects of your business will make the accounting process smoother and easier, giving you accurate and timely data about the financial state of your business at all times.

Better Cash Flow

Having a master plan in place to manage your cash flow will always ensure that you have sufficient cash on hand when you need it to keep your eCommerce business afloat and ready to tackle any challenge that may present itself.

1. Keep your bookkeeping up to date

There are many important reasons to ensure that your books are always current. This is especially vital for improving your cash flow, as it gives you a clear picture of your upcoming expenses and income and lets you know what income you should expect.

Organizing and keeping your books current means you always know how your business is doing financially, so you can make smart business choices about expenses and investments to grow your business. It also makes tax time much less stressful because everything is already organized, which could even help you save on taxes. Keeping track of your cash flow will help you stay on top of bills and expenses. And if you ever need a loan or want to attract investors, having your books in order shows that your business is on the ball and growing.

2. Organize your expenses

One of the best ways to keep your business in the black and out of the red is to line up your expenses to match your revenue trends. You probably find that there are certain times of the month when revenue is higher than others. Choose these periods of increased revenue to pay your most significant expenses.

Since most suppliers expect payment within 60 to 90 days, you don't always have to pay them right away. However, you should continually monitor your accounts payable list to ensure you never incur any interest on late payments. Keeping a good relationship with your suppliers can also benefit you by allowing negotiations for late payments when needed. It may also give you the advantage of early payment discounts in times when revenue is high.

3. Decrease the amount of time between business expenses and getting paid

The less time that there is between paying for an expense and receiving money from your clients, the healthier your overall cash flow will be. If you specialize in selling physical products, always try to minimize the time your inventory stays in stock. Overstocking items means that you are losing money from both lack of sales and stocking fees. Try to stock only those items that you are confident will sell quickly.

The same goes for investing in an advertising or marketing campaign. The longer it takes for you to receive sales from these endeavours, the poorer your overall cash flow will be.

Try to plan out your expenses properly to ensure that you will have a stable amount of sales coming in shortly afterwards. This will go a long way in keeping your funds in the black.

4. Automate recurring payments

Automation not only makes your life easier and more organized, but it also makes things much more predictable. Small businesses can streamline their cash flow by setting up automated payment systems for recurring expenses like utilities, subscriptions, and supplier invoices. This can be done using bookkeeping software that supports automatic bill payments or through banking apps that allow you to schedule regular payments. Automating these payments helps cut down on admin time, reduce the risk of late fees, and keep the finances tidy and predictable, which is especially handy when you're juggling the demands of running your business. Automating payments like rent and software subscriptions will give you a monthly estimate of how much money is leaving your business to cover your regular expenses.

5. Make it easy for your customers to pay you

This probably sounds obvious, but so many businesses unknowingly make this mistake. If the payment process isn't easy for your customers, they will take their business elsewhere. Ensure that you accept all types of payment methods and credit cards; the more options a customer has, the better your chances of making a sale.

You can also automate the billing process. If you have a B2C eCommerce platform, make sure that your customers can easily checkout on your website and pay online. If you sell primarily to other businesses and find that order sizes are large and too expensive for credit card payment, consider withdrawing payments electronically from your customer’s bank accounts using Rotessa.

Read our Best Practice Handbook for Improving Your AR Process.

6. Create a cash flow forecast

A cash flow forecast is like a financial roadmap for small businesses, predicting when and how much money will come in and go out in the future. Looking at past sales trends, seasonal fluctuations, and expected expenses gives you a snapshot of your business' financial health. A cash flow forecast using historical data to predict future sales and expenses will give predictive insights into your cash flow at a specific point. It will also give you the advantage of identifying potential shortages in cash balances ahead of time, allowing you to set aside surpluses to cushion slower months and prepare for seasonality changes. This kind of forecasting helps you anticipate cash shortages and plan for significant expenses, like equipment upgrades or bulk inventory purchases.

At its most basic level, a cash flow forecast is useful for setting sales targets and managing budgets effectively. Essentially, it's all about making sure you’re never caught off guard financially, helping you steer your business smoothly through ups and downs.

7. Increase your average order value

Finding innovative ways to increase order value will ultimately increase sales and improve cash flow. If you sell physical products, you could offer free shipping over a certain purchase amount. If you sell a digital product or service, you can work towards upgrading customers to more expensive plans.

As an eCommerce business, improving your cash flow can mean the difference between success and failure. The better your cash flow, the better able you will be to deal with any fluctuations in sales that may come your way. One of the best methods you can employ to ensure that you always have visibility of your cash flow is to keep accurate and timely bookkeeping records at all times.

Bookkeeping Software and Tools for eCommerce Businesses

The list of available tools to assist with the accounting and bookkeeping needs of eCommerce businesses is infinite. Whether you need help with payroll, reporting, taxes, or forecasting, there is a software program or accounting tool out there to meet your business' specific requirements.

1. QuickBooks Online

Intuit's QuickBooks is probably one of the most famous products for accounting software - and for a good reason. This cloud accounting software has everything an eCommerce business owner needs to manage all of their bookkeeping needs. The software gives you the advantage of tracking expenses, managing inventory, and creating detailed financial reports.

2. Lightspeed

Lightspeed is a valuable tool for any eCommerce business, regardless of your industry. This online platform provides a vast array of services geared towards helping you manage and grow your sales. Everything from online POS systems to full inventory management can be handled using Lightspeed. Plus, they make tracking and reporting all your important financial data easy.

You can also integrate Lightspeed with QuickBooks online to sync all your sales data.

3. Entriwise

If you are an Amazon or Shopify merchant and are looking for one of the fastest and easiest ways to merge your sales data into Quickbooks Online, Entriwise can help. This tool can provide customer account mapping and inventory accounting. It can also take care of Amazon Seller Central and FBA transactions with easy synchronizations that can even be automated at your discretion.

4. A2X

One of A2X’s greatest features is its fully customizable integration process. This accounting app integrates data into Quickbooks Online from Amazon and Shopify to name a few. Its ability to handle multiple tax codes and different currencies, combined with the fact that you can choose which data you want to integrate and how you would like this information to be presented, makes using A2X an easy choice for many eCommerce companies.

5. Dext Prepare

Dext Prepare is an excellent document management tool for eCommerce bookkeeping. It allows users to take photos of their receipts using their smartphone. The program then reads the receipts and creates an appropriate transaction record. Once it has been categorized correctly, it can then be uploaded directly and easily to the accounting software. Dext Prepare can help you organize your finances, assist with taxation issues, create expense reports, and provide you with all the tools you need to create accurate and timely business reports.

6. Paypal

Paypal is another simple tool that new businesses can use to keep their business transactions simple and easy to track. Paypal lets you view and download your monthly account statements, showing you all incoming and outgoing funds for a specified period.

7. Payworks

There is no denying that your employees are the lifeblood of your company. Unfortunately, dealing with payroll issues can often be a headache. Luckily, Payworks has a solution. This program is extremely simple to use and allows you to manage all of your payroll and HR functions in one easy platform. It also allows you to manage employee schedules, benefits, absenteeism and recruiting.

8. PlanGuru

As an eCommerce business owner, you understand the power of forecasting. Having a solid knowledge of what the financial future of your business will look like is imperative to making sound business decisions. PlanGuru gives you the insight you need to grow your business and plan for future success. Using over 20 different forecasting tools can allow you to create accurate and detailed financial projections for up to ten years into the future.

Bookkeeping for Shopify: Four Things You Should Know When Running a Shopify Store

Challenge #1: Recording transactions

Problem: Every revenue transaction has the potential for something to go wrong, so it’s important that revenue is recorded and reconciled properly.

For every sale, there is a credit card transaction, which can pose reconciliation challenges. Cash is typically received a few days after the transaction occurs. Also, you may not receive the full amount of the transaction as cash, as processing fees may be deducted from your total. If you sell across borders, foreign exchange is also a consideration.

Solution: Luckily there are a lot of great platforms designed to assist with revenue reconciliation for Shopify.

Third-party apps like A2X or Entriwise aggregate transactions, so you don’t have to have a separate transaction for each sale in your accounting system. These tools will aggregate revenue data, separate out fees, and make the reconciliation process more efficient and accurate. They can also help you to get accrual-based statements.

Challenge #2: Recognizing Revenue

Problem: The timing of cash received is different from when the sale actually occurs, so pulling monthly reports can be tricky.

Because the date you receive cash in your bank account isn’t the same as when the transaction occurs, recording revenue isn’t as simple as tracking it when the cash hits your account.

Solution: There are two different ways to pull in sales data for reporting.

Use a third-party app to pull in sales data. You can configure this to pull in for a specified period, such as every month.
Use the Sales Report from Shopify. It’s under Analytics > Reports > Finances > Finances Summary.

Using this method, record revenue, discounts, etc as per the sales report as a journal entry in Quickbooks Online. All cash received from different sources should first be added to a clearing account. You would then apply the cash received in the clearing accounts to this revenue.

Challenge #3: Tracking expenses

Problem: There are many expenses, and it can be tough to keep track of all these transaction documents.

Whether it’s paying suppliers or staying organized with SaaS tools, it’s hard to keep track of all the receipts and expenses that are keeping your store running. Furthermore, you'll need to store your receipts and invoices in a safe location in the event of an audit.

Solution: Use a tool like Dext Prepare to track expenses and store your documents

You can use Dext Prepare to track your receipts and move to a paperless environment.

Their mobile app makes it easy for users to take a photo of the receipt or invoice. Their OCR technology reads the information from the photo and saves a copy of the image to the cloud. This helps users save time on manual data entry while streamlining their document storage process.

Employees can also send in their expenses so you can easily review all expenses in real time and keep an eye on your budget. By being able to track your expenses in real time, you're better prepared for an unexpected audit and can find ways to reduce your expenses. For example, supplier discounts, bulk ordering, or pre-ordering.

Challenge #4: Tracking inventory

Problem: Inventory can be difficult to track when done manually.

Recording your inventory as assets requires constant updates as inventory comes in and goes out.

Solution: Find the right inventory tracking process based on your size.

If you are a smaller shop, you may want to use the periodic method: You buy product, add it to your balance sheet as an asset, and then periodically do an inventory count to record the inventory sold or cost of sales.

As you grow, you will want to track your inventory to calculate the cost of sales more accurately. You may be wondering, at what point should I start tracking inventory?

That’s a great question, and it really depends. We typically see this start to become a consideration around the $1.5-$2 million in revenue point. It also depends on the complexity of your inventory and what you are trying to measure.

This can be challenging if you manufacture your own products. In this case, Entriwise is a good solution, but you will need to use Quickbooks Desktop if you choose to go this route.

Another option is to use inventory software like Trade Gecko or Dear Inventory. But beware: These systems are not for the faint of heart and require considerable investment.