Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
You decided to join Shopify and wonder what makes an e-commerce business successful in a massive marketplace. You've heard incredible success stories here and there, but you also know that it doesn't just happen to anyone.
Most sellers who fail to do so or are inexperienced would only focus on implementing effective strategies. Of course, that's not wrong and is a much-needed aspect of a business. However, there's another overlooked aspect: financial management.
You can have the best e-commerce strategy, but things will not work without a good cash flow. It's the core point of it all. Therefore, as you begin your journey as a Shopify seller, you must first build a well-rounded bookkeeping and accounting system. Then, you can focus on other important aspects, such as digital marketing strategies.
If you're still lost in all of this Shopify accounting fuss, take a seat and allow us to guide you with the dos and don'ts of e-commerce accounting in detail. Understand how transactions work on the platform, find good accounting software, look for mistakes to avoid, and take note of accounting tips that work.
Refresher: Why Bookkeeping and Accounting are Important in Ecommerce
In case you're not convinced enough as to why bookkeeping and accounting are as important (or more) than your e-commerce strategy, we've enumerated the reasons why. Before that, here's a quick refresher on the difference between bookkeeping and accounting.
Bookkeeping vs. Accounting
Bookkeeping and accounting can be confusing because their tasks are associated with each other. In addition, some sources would even use them interchangeably. As a result, most people would think they have a similar meaning.
However, it's important to know that there's a significant difference between the two. It's a crucial point in your decision-making when managing your Shopify accounting.
Bookkeeping records and manages financial data. Examples include account reconciliation, organizing transactions, maintaining balance sheets, income statements, and cash flow statements.
Meanwhile, accounting focuses on analyzing collected data to ensure the good financial health of a business. Examples include tax compliance planning, Shopify accounting reports and auditing, and forecasting future costs.
Why Do They Matter to an E-commerce Business?
Now that we're clear with the difference, let's hear the reasons why they matter greatly to your online business.
- Healthy financial management helps you know where you stand and what areas you still need to work on.
- You can keep track of all important transactions associated with your business cash flow, such as inventory, expenses, revenue, liabilities, sales tax, assets, and equity.
- Bookkeeping has the key factors you need to build a reliable business model.
- You can avoid delayed or incorrect payments that can hurt your bank account.
Without the ability to track these accurately, your business could end up in immeasurable heaps of trouble. Of course, no company wants to fail, but those who do often lack focus and management skills in the financial aspect.
Moreover, e-commerce accounting is different from offline management, which makes it a lot more complicated.
- E-commerce doesn't follow fixed "open hours." The transactions keep coming at any time of the day.
- Customers come from different parts of the globe, complicating calculations and bank transactions such as taxes and currencies.
- A small inventory or system error can cause a negative domino effect on your financial records.
- Platforms like Shopify don't provide everything you need to know about your transactions, such as different shipping costs or returns.
It's for these reasons that you need to meticulously work on the bookkeeping and accounting aspects of your e-commerce business.
Accounting Do's for Shopify Sellers
Now that you understand the essence of financial management in e-commerce, let's move on to the core part of this article: how to do Shopify e-commerce accounting. Start by finding the right tools to kickstart your accounting duties.
#1: Find the Right Accounting Software and Shopify Tools
The wide range of accounting software and tools on Shopify might be overwhelming. Avoid making the wrong choices and save time and money with this guide.
Why Do Shopify Sellers Need Accounting Software?
Growing an e-commerce business means working on massive data. Since you're extending your reach to various regions, states, and countries, you will take in more and more transactions. Accounting software offers cloud-based and automated technology, making financial management easier and less error-prone.
Accounting software allows the seller to:
- Keep updated and accurate records.
- Access important information anytime and on any device (with an internet connection).
- Avoid the exhausting manual input and calculation.
- Control the access levels of your team members.
- Integrate various apps or tools to maximize the optimization of your books.
What Is The Best Accounting Software for Shopify?
Experts and most e-commerce sellers usually recommend QuickBooks, Sage, and NetSuite for Shopify. Here's what you need to know about these programs.
QuickBooks is a popular choice for Shopify sellers because it's easy to learn and has advanced features for accounting. You get a user-friendly dashboard for quick references and in-depth accounting reports. In addition, there are customizable options for invoice templates and reports. What's more is that you can integrate multiple apps within and outside of their product range.
Sage incorporates time-saving and industry-specific features. It is a top provider in the UK, but sellers from across the globe can use it. The platform includes an automatic transaction matching system and uses AI to remember your data selections. In addition, it provides in-depth financial reports and has a nice interface too.
NetSuite is relatively more expensive than the two. It's an enterprise resource planning system that allows you to automate financial transactions such as orders, billing, and inventory management. Forms, records, and workflows are customizable with industry-specific options. NetSuite is a good choice for large businesses with a complex accounting system.
What Are Other Shopify Apps You Can Use For Accounting?
Your accounting software must be the primary tool for all your bookkeeping and accounting tasks. However, you may also add other Shopify tools to maximize seamless accounting for your business. Check out these free and simple tools.
- Profit Margin Calculator - Use this tool if you're having trouble with selling prices and ensure to save money and increase profitability.
- Cost-Per-Mile (CPM) Calculator - Use this tool to help you with advertising campaign costs. It calculates cost-per-mile/thousand impressions of one thousand views of your ad.
- Discount Calculator - This tool is handy if you're planning to use a discount code for a special offer or sale and want to find out how much money you'll save.
How to Choose Among Accounting Tools and Apps?
You can only pick the right accounting software if you've identified your business needs. Before you look into these tools, analyze your business status first. What's the current financial situation? What do you need right now to improve, and what are your plans? Will you introduce new products? Will you switch to omnichannel marketing?
Setting your knowledge and expectations of your business will help determine which features you're going to look for in software. In addition, think of the bigger picture and seek long-term solutions.
#2: Stay Updated With Your Books
Keep your books up-to-date to make way for accurate business decisions. You must always have correct financial information to avoid discrepancies in the long run. Do this on a weekly to monthly basis.
Moreover, include basic financial transactions and reports, such as profit and loss statements, cash flows, inventory forecast, and balance sheets. All these details will help you make a better evaluation, forecasting of costs, and budgeting decisions.
#3: Implement Security Measures
A report states that organizations lose 5% of revenue every year due to fraud. The main reasons are that businesses aren't careful enough when hiring someone or don't have effective security systems to prevent incidents like this. Moreover, it takes a lot of time and effort to recover the stolen finances, and most companies fail to do so.
Ensure to keep a close eye on vital financial information. Fortunately, accounting software gives you control over who can access a certain file, such as bank accounts or bank statement reconciliations. Therefore, you can prevent or minimize the risk of fraud with the right tools and meticulous hiring processes.
#4: Learn Your Sales Taxes and Comply
Since the South Dakota v. Wayfair, Inc. decision in 2018, online retailers were required to pay sales taxes in the states they're associated with. The current system is very extensive and confusing, especially if you're not yet familiar with it. Each country, state, and even local areas have different sales tax rates that you have to be aware of.
Tax compliance is a significant part of a seller's obligations, so you must not overlook it. Learn about your associated locations' tax rates and rules in advance and seek effective solutions to comply with them. You can always ask the help of an accounting team to help you with your e-commerce sales taxes.
Accounting Don'ts for Shopify Sellers
To maximize your preventive measures on accounting for Shopify sales, you must also know what mistakes to avoid. People learn from mistakes, but you don't have to make it yourself to understand.
Common Accounting Mistakes on Shopify
Some things never change. Unfortunately, many Shopify sellers still make these mistakes despite warnings and clarifications. Naturally, you wouldn't want to be a part of that, so learn from these errors before making them yourself.
#1 Little to No Accounting System
First off, many sellers do not have an accounting system in the first place. They think that the Shopify dashboard and the little data from their account balance will do all the work. Unfortunately, that can only cost you huge financial losses in the long run.
You can't properly evaluate and organize your finances without an accounting system. You have to track and record all transactions, assets, liabilities, and other expenses. Missing one of these can result in incorrect compliance and creation of your statements. If you're serious about growing your business, do yourself a favor and build a good foundation from the start.
#2 Understating Shopify Deposits
Inexperienced sellers would record all deposits entirely to the Sales category. This creates some issues because tracking them needs some classification. Aside from sales, deposits also include discounts, returns, account fees, shipping income, and sales taxes. You have to code each batch to the correct categories for proper tracking purposes.
Additionally, some sellers record sales in the wrong timeline. For example, one batch might belong to the previous month, but you included them in the current month instead. It becomes difficult to manage, and you're going to screw up your monthly sales data.
#3: Mixing Personal and Business Financial Activities
You should learn how to put a clear line between personal and business matters. In the financial aspect, this is very crucial. Unfortunately, most start-ups or companies with few employees make this mistake often, leading to inaccurate business data and improper compliance.
Some examples are using the wrong bank account for a certain transaction or the same Shopify account for personal and business books. These only put you at risk of financial trouble, so avoid merging the two matters as much as possible. Learn to keep the right records to the correct places.
#4: Individual Recording of Shopify Sales
If you are switching to automated software, don't expect it to handle all transactions effortlessly. While there is truth in what the tools are capable of from that statement, one thing you should know is that it doesn't work on excessive volumes. Just like you, the software can get overwhelmed, too.
If you're running up to thousands of transactions regularly, it can be difficult and time-consuming to reconcile them. This is why instead of one-by-one, you should post your Shopify sales data in summary form and incorporate a cloud system to house it.
Start Shopify Bookkeeping and Accounting Right With Unloop!
Bookkeeping and accounting might not be the main reasons why you wanted to join Shopify at first. Instead, you're thrilled to implement digital marketing strategies and expand your customer base to a global scale. However, you must also understand that bookkeeping and accounting are the foundations of a profitable business.
Regardless of whether you like Shopify bookkeeping and accounting or not, you have to do your books properly. Think of it as a long-term preventive measure. Don't make e-commerce harder than it already is. Do everything you can to make the work easier and 100% accurate.
If you feel this will take up too much of your time, you can work with the Unloop Team to manage your books. Our services include bookkeeping, sales tax, and income tax (together with our partner accounting firms) for Shopify, Amazon, and multichannel sellers. Moreover, we use the best accounting tools like QuickBooks Online, TaxJar, and A2X. Gear up for a seamless accounting on Shopify today.