There’s a good chance that as a creative entrepreneur, you didn’t start your ecommerce store excited to take on the bookkeeping.
Though it’s essential to the success of every business, bookkeeping can be quite daunting to many business owners. And with the complexity that ecommerce businesses bring – i.e. selling across provinces, holding inventory – it’s important to be prepared so you’re not caught off guard.
Here we will break down 4 common challenges that you will encounter when running a Shopify store and how you can address them.
Challenge #1: Recording transactions
Problem: For every revenue transaction, there is 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 as 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 there may be processing fees 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, separating 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: 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 into 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 solutions where you can pull in sales data for reporting.
The first solution is to 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.
The other solution is to use the Sales Report from Shopify. You’ll find this 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 a lot of expenses.
Whether it’s paying suppliers or staying organized with SaaS tools, it’s hard to keep track of all the receipts that are keeping your store running.
Solution: Use a tool like Receipt Bank to track expenses.
At Enkel, we’re big fans of Receipt Bank. Use Receipt Bank to track your receipts and move to a paperless environment.
Their mobile app makes it easy to take a photo of the receipt or invoice and their OCR technology will read the information from the photo and save it. This saves the time of manual entry.
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 expenses. For example, supplier discounts, bulk ordering, or pre-ordering.
Challenge #4: Tracking inventory
Problem: Inventory can be difficult to track
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 where you simply buy product, add it to your balance sheet as an asset, and then do an inventory count periodically to record the inventory sold or cost of sales.
As you grow, you will want to track your inventory for a more accurate calculation of cost of sales.
You may be wondering, at what point do I start tracking inventory? That’s a great question and it really depends. We typically see this start to become a consideration around $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 are manufacturing 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 going with an inventory software like Trade Gecko or Dear Inventory. But beware, these systems are not for the faint of heart and take considerable investment.
Putting it into practice
Now that you’re aware of common challenges with Shopify store bookkeeping, it’s time to put some of these tips into practice.
If bookkeeping isn’t your jam and you’re looking for someone else to take care of the headache for you, you’re in luck. At Enkel, we offer bookkeeping and controllership services for eCommerce businesses of all sizes. Reach out to learn more about how we can help.