One of the most challenging things about running an ecommerce business is accounting. Since ecommerce is so complex, and the sheer volume of transactions can be intimidating, your accounting may need help to keep up with your business. You'll need a better accounting process to satisfy your business's demand. Specifically, you'll need the best accounting software for ecommerce.
Since ecommerce is a worldwide business, its accounting is trickier than traditional businesses that serve only within physical locations. This 2023 the ecommerce industry is projected to jump to $6.51 trillion in value. Just think of the transactions that make up that figure—massive.
Ecommerce accounting differs because there is a lot more to account for. Here are some transactions that ecommerce accountants manage daily.
As mentioned, ecommerce is a global industry. Through an ecommerce platform and an exemplary shipping service, an online business can sell anywhere in the world. However, to be able to sell legally, there must always be a sales tax attached to each sale.
Ecommerce accounting requires sales tax calculation for different tax policies. For example, while Amazon allows you to let them help you handle your taxes through the Amazon Tax Exemption Program (ATEP) for sales in the US, you'll still have to collect and remit your own sales taxes in Canada. On top of that, the US and Canadian sales tax rates are completely different, with their tax returns filed each year.
If you want your ecommerce business to thrive in an industry with thousands of competitors for every niche, you'll have to have many products on-hand and ready to meet demand at a moment's notice. Another thing that separates ecommerce from regular businesses is that sellers have a vast inventory.
Inventory tracking is no easy task for anybody, especially for small businesses. However, if you're a business that ships to customers in different timezones, there will be an inevitable addition to your accounting load. Add to that the sheer volume of items you'll have to check on-—where they are stored, how many are ready for shipping, how many are damaged or lost—and reconcile your records regularly.
If you're selling products or services to the world, expect to be met with thousands of transactions daily. That means various modes of payments, currencies, bank accounts, taxes, and so on. Tracking each transaction will take copious amounts of time and energy, and still, you might miss out on some financial data, which, for a global business, you cannot allow to happen.
While it's possible to do your accounting manually, tracing every transaction in an ecommerce business can make even the best accountants dizzy. In such cases, giving your accounting specialist some much-needed assistance, like accounting software, is good.
Using accounting software produces financial reports quicker and with fewer people, saving your company time and your accountant's energy. However, not all accounting software on the market can suit your ecommerce needs; for your online business, you'll need the right accounting software.
Accounting software comprises different accounting tasks that your accounting staff can do electronically. However, if you want the best accounting software for ecommerce, here are some key features it must have.
Bookkeeping is an integral part of your business finances. Without proper bookkeeping, you can risk losing track of your income and expenses and have an inaccurate view of your company's financials.
Having a bookkeeping feature in your accounting software allows you to keep a record of each sale or expense and automatically add it to your company's financial data for the accounting software to note.
Small business owners have a hard time managing inventory, and how well you take care of inventory can directly affect your business. Since ecommerce sellers usually store items in remote warehouses, like Amazon FBA fulfillment centers, losing track of units or missing out on damaged ones is becoming too common. The right inventory tracking tool lets you know how much you still have for sale and who will compensate you for lost or damaged items.
Since payments to your online businesses are often made remotely with various payment schemes, it's important to have an accounts receivable feature in your accounting software to keep track of your revenue. An accounts receivable feature lets you know how much money to expect and how much you can use to repurchase stock.
As a business, you also have investments that help grow your company. Having an accounts payable feature lets you know how much your business is shelling out on a weekly or monthly basis and could help predict your future expenses.
For example, if you're in the retail business, you may have scheduled shipments to replenish your inventory. Accounts payable notes this in advance for you to continue or change, depending on your decision.
Ecommerce integration is perhaps the most important feature you should have in accounting software. An ecommerce integration feature streamlines transferring your financial data from your online business to your books, so there's no need for manual data entry if you don't need it.
Direct integration also organizes your accounting in such a way that it suits the ecommerce platforms you have decided to sell on, giving you an easier time tracking your financial data.
If you want a bigger accounting team, you'll also need cloud accounting as a feature. Cloud accounting uploads all your data to the cloud, securing it and allowing multiple users to log on and do your accounting.
Cloud accounting is great for an expanding business since it allows you to assign multiple people to do different accounting tasks simultaneously using your software.
Mobile app functionality is a great feature to add to your accounting software. With everyone on the go nowadays, having a mobile app handy allows you and your staff to update your accounting whenever and wherever.
Out of the top ecommerce accounting software options, we recommend QuickBooks online. With well over 200,000 companies using QuickBooks, it's undoubtedly one of the best accounting software in the market. With QuickBooks, you can expect the following features:
The best part is that's not even all of them. QuickBooks is designed for many accounting tasks—too many to list down. That shows how versatile QuickBooks is and why it's one of the best in the market.
Doing the books for your ecommerce company can be a huge hassle. Fortunately, Unloop will be happy to do your books for you.
As one of the premier accounting services in North America, Unloop offers bookkeeping services to go along with precise and detailed accounting. Book a call with us and see how we can help your business today!
Your financial statements are one way to know how well your business is doing. However, some things are just inevitable, such as errors. Whether you make financial statements manually or generate them through accounting software, there's always a window for mistakes. That's why preparing financial statements should be handled with extra care.
A small mistake in financial statements can have enormous consequences. However, understanding how things go wrong can help business owners fix and prevent these errors. Let's look into the common mistakes with business reports, so you know what to do when your numbers don't match.
Before we start discussing the pitfalls of financial statements, it is also crucial that you know when a problem occurs. Here are some questions you need to ask to help you determine inconsistencies and errors in your business statements.
If you answered no to one or more of these questions, there might be something wrong in the process or the reports themselves, and you should start addressing them.
Sometimes, no matter how carefully small business owners prepare their reports, mistakes still seep in. Here are mistakes you should look for in different financial statements.
Data entry is the most common and frequent error that could happen in financial statements. Among the most typical mistakes made when entering data are:
It's always best to have two copies of your important financial statements to compare them side by side. Furthermore, you can assign personnel to double-check the entries to guarantee that there are no inconsistencies.
Some businesses choose to produce single-columned reports, which are short in comparative data. Including the company's current assets and previous vital data points will give a better insight into the business's financial position.
Financial reports such as income statements and expense reports should contain comparative data. It will help you see if your business generated more sales than in other months so you can adjust your strategies. It goes the same for your expenses. It always helps to compare your current and previous expenses to see if you're going overboard to look for ways to save your resources.
An error of commission happens when you mishandle data and enter it in the wrong place. In this error, you still enter the correct amount. The inconsistency happens when you put it in the wrong category. For example, you make a sale of $100 from your products, and you accidentally put this in your expense column.
You will see a decrease in your inventory but not an increase in your sales which can confuse you when the report comes out. It will also make your expense report higher than usual. Small amounts may seem insignificant, but they may turn your finances into chaos when it's consistently happening.
Making financial statements will be pointless if no one takes the time to read and study them. Aside from understanding what the numbers mean for your financial performance, inspecting them to look for suspected errors is also crucial.
To help spot errors in profit and loss statements, balance sheets, and other important business reports, every person that receives the reports should:
If the administration can’t find solutions to the errors in the report, it's best to hire someone who can help you sort out and correct the errors in your financial statements.
Errors in your financial statements will be ever-present if you don't look for the root cause of the errors. Revising some of your accounting procedures can help decrease and eliminate these errors.
For example, most data entry errors, such as omission or mishandling, stems from doing them manually. If you have a small business, manually recording income and expenses or making cash flow statements are a piece of cake. But regular and accurate recording will prove much more challenging as your business grows.
In its place, you can invest in accounting software to eliminate errors in your data entry. Revisit all your accounting procedures and make adjustments to ensure recurring errors in your reports can be eliminated.
Financial ratios are essential to assess your business activity. It will help you pinpoint potential problems before it does considerable damage to your business. For example, suppose your account receivables grow from 25 days to 30 and 35 days over a specific period. In that case, it can signify that some of your customers still have pending cash payments or you must catch up on collection responsibilities.
Calculating financial ratios should be done with the three main financial statements— income statements, balance sheets, and cash flow statements. By doing this, you can spot discrepancies and address potential problems.
Some mistakes are small and easy to remedy, but some are harder to spot and significantly damage businesses. Here are some consequences that come with erroneous reporting.
Proper bookkeeping is critical to creating accurate financial statements. Fortunately, there is an expert ecommerce accounting service that can help small businesses like yours. Unloop offers all-around accounting services for ecommerce businesses.
For your financial statement needs, Unloop's bookkeeping services have got you covered. Our bookkeeping services include the following:
Financial statements say a lot about the overall financial health of your business. Ensuring they are accurate and complete with all essential data points is a top priority. We hope this list of common mistakes helps you be more careful of your errors.
In addition, if you need professional accounting help, Unloop offers other services such as accounts payables, forecasting, payroll, and taxation. Book a call with us today!
Treat making tough decisions as the norm once you begin your business. Sometimes, you’ll be stuck in a dilemma and have to make difficult choices. But at the end of the day, your goals will guide you to the right choice. And you know what can help you along the way? Your business’s financial data.
In this article, we’ll help you answer the questions lingering in your mind about whether you should hire an accountant for a small business and everything in between. Determining the answer isn’t easy, so check out these questions and the answers to help you.
Let’s begin this list of FAQs by knowing why small businesses like yours should hire a business accountant. We’ve listed a couple of reasons!
An accountant’s primary responsibility is to help you make sense of the numbers a bookkeeper collates and organizes in the books. When you hire an accountant, they can create easy-to-understand financial reports and present them regularly.
Taxes are one of the challenging tasks you need to do. As a rookie in the business, you may not understand the ins and outs of taxes, and getting it wrong can mean consequences from the tax bureau. Skip this hassle when you have an accountant. They are well-versed in taxation laws and will ensure they do it right for your business.
Forecasting is creating goals and making plans for your business finances for a certain period. To achieve a credible forecast, historical data should be sufficient and accurate. Having an accountant frees you of this task and assures you that the forecast you get is as accurate as possible.
The benefits of hiring an accountant for a small business go beyond your company. An excellent accountant reflects how reliable your organization is. Accountants can also represent you in an audit, during investor presentations, and in loan and grants meetings.
Lastly, when you have an accountant, you can focus on other essential tasks needed to run your business. Your accountant will handle your finances in your stead.
When you launch your business, ideally, you should already have an accountant on your team. Doing so can save you from untracked and disorganized financial data. Even if you have a bookkeeper that organizes your books, you still need an accountant to create reports from the data.
Aside from covering this essential financial management step, an accountant is beneficial when you find it challenging to scale your business. Accountants can give helpful insights into the root cause of the slow growth and the various ways you can speed up business expansion. They are skilled in giving financial advice based on data too.
You’ll also find an accountant most helpful when business planning as they can help you with forecasting.
Are you convinced you should hire an accountant, or have you been planning to do so all along? Then, the qualities you should strive for to get the best accountant must be a question you ask.
Look for these qualities to hire the best accountant:
It would be best to look for hard and soft skills—an accountant who is eagle-eyed with numbers but knows how to work with people.
There are three basic ways to hire an accountant: in-house, freelance, and one from a financial services company. Each has its benefits and drawbacks.
You can hire an in-house accountant the traditional way. Post a job opening including the qualifications and responsibilities you expect applicants to have, interview them, and conduct tests if need be.
The advantage of having an in-house accountant is they’ll be familiarized with your business operations and know your company personally. As a result, their financial analysis will be more personal and tailor-fit.
However, you will be responsible for their monthly salary, benefits, and training and development because they are formally a company member.
You can also choose to go with a freelance accountant. You can find them on freelancing websites posting their experiences, qualifications, and contact information. Most freelancing websites show feedback from previous clients, so you can also check for social proof of the accountant’s performance.
You do not need to require a freelancer to work a regular 8-hour shift. You can give them tasks; you only need to pay them for their rendered hours when they are done. Because they work with many companies, freelancers have diverse experiences and can provide insights based on those.
The only drawback is you need to invest time briefing your accountant about your company and operations, so their analysis and advice will be relevant.
Your third choice in hiring an accountant is by partnering with a financial management company. These organizations usually have established websites where you can contact them. As part of your research, you can browse their site for their offers and the companies they’ve worked with.
Financial management companies do not offer only accounting services, but also other services you might need for your company finances. These offers come in various plans. You need to choose which plan has the help you need and sign up for it. You can stop the service anytime or after a contract expires. You may also extend it as needed.
Working with agencies has the same disadvantage as working with freelancers. You need to explain your business and operations to them so they can handle your account effectively.
The answer depends on the type of accounting service you want and your location. In the US, different states pay accountants different monthly salaries, and the best-paying states offer salaries ranging from $95,000 to $110,000.
Meanwhile, a freelancers’ average hourly rate is $37 for 2023. And if you wish to partner with agencies, the costs vary too, depending on whether you’ll sign up for a monthly, quarterly, or annual plan and the variety of the included services.
The qualifications and experiences of the accountants also affect their hourly rates and salaries as well as the services they’ll provide you.
Whether you need an accountant or not goes hand in hand with which accounting software you decide to invest in. To make your accountant’s work more efficient, you must pick software they can use. Here are two of the best ones out there.
QuickBooks is a reliable accounting tool because its features make an accountant’s life easier. QuickBooks has a live bookkeeping function that ensures your books are complete with data from the beginning of the year to the present. As a result, accountants can run complete reports and give insights using updated data.
An accountant can remind customers and receive payment from online gateways through invoicing. Bank transactions automatically go into the accounting system too.
And if you have projects and employees to manage, the software's time and project tracking feature will make your accountant’s payroll duties more efficient.
Xero is another software that’ll make your company’s accounting more efficient. Your company bookkeeper and accountant can use the tool to track income and expenses, send invoices to receive payments on time, and track bank transactions through bank reconciliation.
It also has a time and project tracking feature, making sure that hours rendered by your employees are recorded in the books. With readily available data, your accountant can prepare the payroll faster.
Xero is also integration-friendly, so data from other business tools you have can all be collated in a single accounting software. When analysis and reporting days come, your accountant can run reports that show all areas of your business.
A qualified accountant will help you make sound business decisions based on their knowledge, experiences, and collected financial data. So, hiring an accountant is a significant business decision. We hope that these answers can help you hire the best candidate.
And if partnering with an agency of finance experts is the right choice for your business, we at Unloop can help you. Our services revolve around bookkeeping, forecasting, handling taxes, accounts payable, and payroll solutions. Contact us now. We’ll be glad to discuss the details of our services with you.
It is impossible to determine your business's annual revenue to the exact dollar. However, high-quality revenue forecasting is necessary for every business. Forecasting allows your business to respond to challenges and prevent significant losses from happening.
Revenue forecasting is a difficult task, and if you are not well-versed in how to forecast revenue, many challenges will hinder you from creating an accurate revenue forecast for your business. Understanding where things could go wrong will help you improve your forecasting results and overcome potential difficulties.
A clear picture of the average revenue helps businesses make strategies to cater towards their growth. However, many factors affect the success of the forecasting process. Here are the biggest challenges in revenue forecasting and how to solve them.
The foundation of revenue forecasts is data points. Inadequate or worse, incorrect data basically makes your revenue projections useless. If something is inconsistent about your forecasted revenue, it's always best to go back to the data you gathered.
Obviously, improving your data gathering is the solution to this challenge. But how do you do it? Investing in forecasting software is the best way to eliminate the dangers of human error when gathering data for forecasts. If possible, you can assign a dedicated team to make sure all the data you have are valid.
You can project how much revenue you will have based on a specific period. For some businesses, annual forecasting is the most common way to see future revenue. However, you can make revenue predictions for five or even ten years.
The challenge starts with forecasting range. The shorter the time period, the more accurate the forecast you can get. Longer ones are more challenging since several unforeseen factors can affect your business revenue.
It's up to the business owner to decide the time period. But to avoid inaccurate forecasting, we recommend sticking to annual forecasts so that predictions reflect expectations and realities.
Historical data is vital to create a revenue forecast. For example, your business has grown consistently at 10% in the last five years. You can predict that your business will still grow at 10% in the following years.
However, if your past performance varies, using historical data is useless, and you may want to try other revenue forecasting methods. Furthermore, using past data is not available for start-ups. In some situations, past data won't affect forecast revenues because of several external factors. Always take note of considerations when using historical data.
In plain view, wrong computations are easy to fix and prevent. You'll be surprised how many revenue forecasts go wrong because of simple arithmetic mistakes. Wrong computation stems from the lack of attention to detail. If you're using software or Excel sheets, double-check all data entries and formulas to guarantee accurate results.
A business can use several forecasting methods to determine their company's revenue. Choosing a financial modeling method is vital for an accurate prediction, and most business owners fail to consider the data they have at hand before going through the forecasting process.
There are four primary forecasting methods:
Choosing the correct method starts with studying underlying patterns in your earnings. Don't be tempted to go the easy and short way if you want an accurate forecast.
Not all businesses invest in forecasting, but a growing business should take advantage of forecasting to continue growing and make informed decisions for the improvement of the company.
Here are some benefits of proper forecasting for your business.
In business, there's always room for improvement. When you do forecasting, you can see which area to improve to propel your business to success. Furthermore, forecasting can identify problems early before they can cause irreversible damage to businesses.
According to research, businesses that do regular and correct forecasting are 10% more likely to grow and outcompete their direct rivals.
It's one thing to say that your business is doing great but seeing the number gives you a clearer picture of how well you are doing. For example, your business has had a stable income of $300,000 annually in the past years. Your current revenue forecast shows that by the end of the year, your sales forecast will go up to $500,000.
The numbers show how many resources you can use for other business operations. Likewise, if your sales forecast drops, you can see precisely the deficit, and you can strategize how to bring your numbers back up.
It's not enough to know that you want high sales, you have to identify the actual sales you want to achieve, and forecasting can provide you with the exact figures you want to reach. According to forecasting science, 97% of businesses who do forecasting reach their sales quota.
In contrast, for businesses that rely only on strategies and not maximizing forecasting, only 55% of them reach their sales goal by the end of the year.
Revenue forecasting helps businesses attain sales efficiency by giving an insight into your customer's behaviour. By predicting your future sales, you can adjust your prices accordingly, roll out your advertising, and make time for product development.
Forecasting can show the period when your sales will spike. You can maximize the information to increase your inventory and generate more sales for your business.
One of the reasons you should do forecasting is to help you manage your cash flow efficiently. The forecast can help you plan your payments and avoid delays and penalties. It also lets you see when customers' payments are coming into your business, so you strategically allocate your business resources.
Efficient cash flow management builds trust between your employee and suppliers. It can also help you negotiate properly when you need credit for paying your personnel or new business ventures.
If you don't have experience with forecasting, you'll find it complicated to forecast revenue. Fortunately, Unloop offers forecasting services for small businesses looking to scale and assess their financial health.
Our forecasting services include:
Forecasting revenue is essential if you want to continue scaling your business. However, forecasting is on the complicated side of accounting. We hope this blog post helps you plan better for forecasting.
If you need more accounting services, Unloop offers bookkeeping, accounts payable, and payroll. Book a call with us and talk to an expert for free!
In this ever-changing landscape of ecommerce and technology, it can feel overwhelming for any Shopify business owner to stay ahead of the game without reliable help. Take it from us. You'll need the best accounting software for Shopify to thrive and expand like a real corporate empire!
In this blog, we will teach you the latest news and updates in the Shopify market and how to optimize your business finances with high-grade accounting software that experts thoroughly recommend.
So what're you waiting for? Let's start by learning about what's happening to Shopify in this new ecommerce age!
Running a Shopify business in 2023 can be an exciting and challenging experience. With the ecommerce industry snowballing post-pandemic, Shopify has become an even more popular platform for entrepreneurs looking to start and grow their online businesses.
In January, the ecommerce platform announced the launch of Commerce Components, which enables retailers to create customized and branded online stores while taking advantage of the scale, reliability, and performance of Shopify Plus.
In addition, Shopify also announced a range of other updates and new features designed to help merchants grow their businesses, including but not limited to: a new subscription platform, Shop Pay Installments, and updates to its fulfillment network.
Overall, we're looking at an expanded commercial platform that's looking to carry multiple businesses from the start-up phase to the enterprise level.
If you're still new to the ecommerce business or just unfamiliar with what accounting software does, let's first try walking you through what a Shopify store owner regularly comes across in their day-to-day operations.
As a Shopify business owner, your day-to-day operations can vary depending on the size and nature of your business. However, some everyday tasks and challenges you may encounter include project tracking, inventory management, checking sales tax, and recording financial data.
Without a good background in accounting solutions, it can be pretty tricky to crunch numbers or analyze things like accounts payable or accounts receivable that would affect the business's liquidity and cash flow.
What accounting software does for online store owners is that it helps keep track of your sales, expenses, and profits, manage your inventory, and prepare your tax returns more efficiently and accurately. It can save you time and money by automating routine tasks, minimizing errors, and giving you insights into your financial health.
From fixed asset management to sales tax tracking, the best accounting software will provide an accounting solution for every problem or concern your business might face. But that's not all!
Here are some of the qualities of accounting software that you will want to consider before investing in one.
When accounting software integrates seamlessly with Shopify, it's always a good sign.
Shopify store owners can automatically import their sales, expenses, taxes, and other financial data to the platform with minimum stress. Seamless integration also reduces the risk of errors and ensures that your financial records are accurate and up-to-date.
Project management also becomes less complicated because now, you've got real-time insights into your financial health, which means you can make better business decisions and compete better with other Shopify store owners.
In today's age, convenience and accessibility are essential, and not just for customers! Accounting tools have to be easy to use. Otherwise, small business owners won't benefit from them at all.
If accounting software is easy to use, it becomes accessible to everyone in your organization, regardless of their level of accounting knowledge. It saves so much time on training, learning, and troubleshooting.
This means that you and your team can spend more time on core business tasks, such as generating revenue and serving customers, instead of accounting tasks like bank reconciliation or sales tax configuration that already sound very confusing for non-accountants.
Every small business wants the best free accounting software. But you know what they say: nothing comes for free!
Nevertheless, if you're worried about breaking your bank account, don't be. While cost is an essential factor, it's also important to consider the value you'll get from your investment. Most accounting software offer relatively affordable prices.
More expensive accounting software may provide additional features or better support to help you save time and improve your operations, ultimately resulting in a higher return on investment.
As your business grows, your demands for an accounting system may change. Choosing cost-effective accounting software that can meet your business's demands can help you avoid the costs of switching to new software in the future.
Every business has unique accounting needs, and choosing accounting software that offers features that align with your specific requirements is essential. By choosing software with customizable features, you can tailor the software to fit your business’s needs and make the most out of its capabilities.
Cloud-based accounting software typically has built-in security features, such as encryption, firewalls, and multi-factor authentication, which can help protect your financial data from unauthorized access.
Other accounting apps provide unlimited users with project management tools and inventory management features. What matters is that you choose an accounting software that best suits your Shopify store.
Now that you know the qualities of the best Shopify accounting software, it's time to keep you up to speed with the kinds of options on the market that you can get immediately.
Here is our list of the top 5 best Shopify accounting software in 2023.
QuickBooks Online is a cloud-based accounting software widely used by small and medium-sized businesses. It's considered a comprehensive accounting software that has a track record for helping businesses materialize growth and sustain financial health.
Features and Benefits: QuickBooks Online offers a range of features and benefits that can help Shopify businesses streamline their accounting processes. Some of the key features include customizable invoices and estimates, expense tracking, bank reconciliation, and financial reporting. QuickBooks Online also offers automated features for invoices and payments.
Integration With Shopify: QuickBooks Online integrates seamlessly with Shopify with the help of a third-party app. With the integration, businesses can automatically sync their sales data, customer information, and products from Shopify to QuickBooks Online. QuickBooks Online also integrates with other Shopify apps, such as TaxJar and ShipStation, which can further streamline accounting processes.
Cost: QuickBooks Online offers a range of pricing plans to fit different business needs and budgets. The plans start at $15 monthly and go up to $100 for the highest-tier plan.
Xero is another popular cloud-based accounting software suitable for Shopify businesses looking to marry marketing and finances through its innovative contact management feature.
Features and Benefits: Xero's contact management system allows businesses to store and organize contact information for customers, suppliers, and employees. The system is designed to be user-friendly, with the ability to easily add, edit, and search for contacts. It's also capable of automatic transaction matching, which helps alert business owners whenever a transaction enters the bank account.
Integration With Shopify: Integration is easy for Xero through third-party apps like A2X and Parex Technologies.
Cost: Xero may be a more cost-effective option for businesses than QuickBooks Online, as the plans start around $9.25. Additional features, such as payroll processing and multi-currency support, are available for an additional cost.
FreshBooks is designed for small businesses, freelancers, and entrepreneurs. Most accounting app users prefer to use FreshBooks for its accessibility and automation features.
Features and Benefits: FreshBooks offers invoicing, time tracking, expense tracking, mobile access, and real-time reporting—allowing business owners to stay on top of their finances from anywhere. Double-entry accounting was recently added to the software, and with the most basic plan, you create customizable invoice templates.
Integration With Shopify: FreshBooks already has built-in Shopify accounting integration to ensure any online business can utilize needed accounting tools.
Cost: This accounting software for Shopify has three main plans, which are Lite, Plus, and Premium. Its price starts at $17, but you can also purchase their customized option that lets you choose which accounting features you want to be included or excluded in your plan.
Wave might be the best accounting software for Shopify if we're talking about costs because this accounting software is free to download. Yup, you read that right!
Features and Benefits: There are many benefits that small businesses can access when using Wave, like multi-currency support. Wave supports transactions in multiple currencies and can automatically convert them to your home currency. Wave can also connect to your bank and credit card accounts and import transactions automatically.
Integration With Shopify: Like most Shopify accounting apps, the Wave accounting software uses a third-party app to integrate with Shopify. You can get the Sync to Wave app, which helps small businesses receive Shopify orders in their Wave Accounting.
Cost: While free, you might have to pay a monthly fee of $9.95 for integration.
If your business primarily uses the Apple ecosystem, you will want to get Zoho Books.
Features and Benefits: Zoho Books has an intuitive and easy-to-use interface that makes it simple for businesses to manage their finances, even if they don't have prior accounting knowledge. Zoho Books also uses bank-level security to keep all financial information safe and secure. The software offers regular backups to prevent data loss.
Integration With Shopify: Zoho Books integrates with various third-party apps, including payment gateways, payroll software, and CRM software. The Shopify app store carries all your third-party apps for smooth integration.
Cost: The good thing about Zoho Books is that you've got six options to choose from. The first option is free and provides a client portal, expenses & mileage tracking, and even multi-lingual invoicing. The Standard option, which starts at $10 per month, increases the number of users and adds voice-chat support, among other things.
Whether it's time tracking or dealing with balance sheets, good accounting software will help your business get far and give you some accounting knowledge that'll be handy in the future.
However, you wouldn't want to stop there now, would you? You can upgrade your Shopify hustle to even more extraordinary lengths by working with a reliable accounting firm that always puts your best interests first.
At Unloop, we want to see you succeed, so we provide accounting solutions for Shopify store owners much like yourself.
Book a call with us today to see how we can help you reach your goals and maximize your returns with the best accounting advice available in the industry.
Once you become an ecommerce business owner, expect days to be longer, and responsibilities to be greater. You’ll welcome the hustle as you know it is part of the job, and it is required to make your business succeed. Yet, despite the passion and energy to take on any challenge that comes your way, know that the key to success is by optimizing your business operations early.
This article will help you optimize your online business financial management through proper bookkeeping. Check out these nine small business bookkeeping tips to ensure you do your bookkeeping correctly and efficiently.
Before optimizing your bookkeeping processes, arm yourself with basic bookkeeping knowledge first. Begin by knowing that bookkeeping and accounting are separate tasks. Bookkeeping is all about tracking data and organizing it in a business’s books. Accounting, on the other hand, is the task of making sense of numbers through reports. Despite the two being different, they always go together.
For starters, you’ll have to choose between these two recording methods: cash-based and accrual accounting. The first tracks money as it comes in and out of your business, while the latter tracks income and expenses over a certain period.
It is also essential to familiarize yourself with bookkeeping and accounting jargon like assets, liabilities, equity, revenue, expenses, costs, and profits. Awareness of these terms will make it quicker and more efficient for you to check your books and understand reports.
Now you know what bookkeeping is about, it is time to start tracking. To do it right, don’t go at it alone. Hold different team members accountable for keeping their income and expenses tracked and organized, and reported regularly. Doing so will save time, effort, and resources.
Investing in good bookkeeping and accounting software can help you streamline and automate your processes. You can integrate the data you have in the ecommerce platform you are selling on with the software. Then, your data can be categorized and organized automatically.
You can combine this data with other key performance indicators you are tracking that aren’t provided by the ecommerce site. You can also use the software’s report generation capabilities to make sense of all your data.
When there are changes and updates in the books from different departments of the company, they get recorded automatically. Everybody can view the most updated data immediately.
Other benefits you will enjoy from having bookkeeping and accounting software are the following:
Do not hesitate to invest in these tools, nor think that an Excel sheet is cheaper and better. With all the benefits of the latest bookkeeping and accounting software, your investment will be worth it.
Your business should have its own bank account before you launch your ecommerce store. The business transactions in your bank should go straight to your books to be categorized accordingly. Doing so removes the additional step of separating your personal funds and personal liabilities from business income and expenses.
It also keeps you from overspending or being too thrifty because you can see your profits clearly. When tax season comes, the computation of the income and the taxes you must pay will be easier. You can also see the sales taxes you collect and need to remit.
Finally, having a separate bank account makes it easy to get a loan as you can quickly generate cash flow and profit and loss statements.
Run financial reports regularly to utilize the data recorded in the bookkeeping process. Bookkeeping and accounting tools allow you to generate reports in just a few clicks because they have templates. You can quickly check the following financial statements:
You can customize reports too.
As a startup ecommerce business, running reports as often as possible is best. Doing so allows you to see your business’s successes and duplicate the best practices that led to those wins. On the other hand, if there are alarming numbers reflected in the report, you can create mitigation plans quickly and improve your financial performance.
Another area of your ecommerce business you need to be on top of is inventory management. Customers get turned off by stores with products they want but can’t buy because of a lack of supply. When your inventory isn’t organized, you miss out on plenty of sales opportunities.
The good news is that most ecommerce sites have an inventory management feature, so you only need to integrate the data into your primary accounting system. You can add the numbers to other data stored in the tool to determine the cost of goods sold and delivery or fulfillment costs.
The collated data and reports will guide you in deciding whether your fulfillment methods are efficient. You can also use your findings to know what kind of promotions to launch and which products to focus on to boost or maintain their sales.
You surely envision your venture growing in the months and years to come. As your business grows, so will your team.
If you sell on ecommerce platforms as a manufacturer, you’ll have workers or partners making, checking, packing, and transporting your products. Even when you register as a reseller, you must pay for services transporting ready-made items through fulfillment centers.
Depending on the size of your company, you’ll grow into several departments. You’ll have finance and accounting, marketing, sales, human resource, customer service, and research and development teams to manage and give salaries to.
Having a bookkeeping software that has a human resource feature allows you to:
These HR details have monetary value and impact, so they should also be tracked and included in the books.
One of the most underrated accounting and bookkeeping tips is investing in a tool with a customer relationship management (CRM) feature. This practice will make your business operations even smoother.
The data you’ll get from a CRM tool might not be in monetary values, but you can get just that by combining them with other data stored in your accounting and bookkeeping software. Because customers are your business's lifeblood, you must include these details in your bookkeeping.
Give yourself and your bookkeeper the convenience of having customer insights within your main accounting tool. A CRM tool saves contacts of leads and customers that can help you conveniently send invoices and do marketing. It stores information like the sales journey of a potential customer and the issues they experience in the sales process.
We’ve already discussed the basics of bookkeeping and knowing how bookkeeping tools and their features help you optimize your ecommerce business operations. Now, we’ll answer a lingering question many business owners like you have: should you hire a bookkeeper? Our answer is yes!
Here are the benefits small business owners reap in partnering with bookkeeping professionals:
It’s tempting to do bookkeeping yourself, but with plenty of tasks on your plate, the best move is to delegate it to experts.
By now, you must have realized that optimizing your bookkeeping can also make your business operations run smoothly. These nine tips may be a lot for some, but implementing them in your business will be worth it.
If you need more bookkeeping tips and tricks, assistance using bookkeeping and accounting software, or if you want to delegate bookkeeping tasks to experts, Unloop is here. We have a team of bookkeepers who are well-versed in the ecommerce industry, so your books will always be in good hands. We also specialize in accounts payable services, forecasting, payroll, and taxes.
Contact us now so that we can discuss our offers further.
The era of automated accounting has finally come. Although Excel sheets are still available, business owners, bookkeepers, and accountants can now choose to go with automation. So, you might be wondering, does Shopify have accounting software?
We’ll answer that question here! We’ll also discuss why you should utilize accounting software and various apps and integrations for your Shopify store. To make your search easier, we’ll list the different accounting software, applications, and integrations you can use for your Shopify business. Knowing each tool and its features will help you decide which the best is for your business. Let’s begin!
Before going into the specifics, let’s ensure that you have the right mindset regarding accounting. As early as now, you should understand the importance of bookkeeping and accounting in the growth of your Shopify business and in scaling your business on other ecommerce platforms. Let’s answer why it is necessary to use accounting software, apps, and integrations.
When it comes to bookkeeping and accounting, accuracy is a top priority. Only when all the data in the books is correct can you get an objective view of your business finances. When you use bookkeeping and accounting software, apps, and integrations, you make everything automated and limit completely eliminate manual input—the root cause of mistakes.
Automation saves time and effort because there is no need for manual data input. You can view organized data from various payment gateways, the business’s bank account, inventory management tools, tax software, and more in a single place. All information from different apps and software goes straight to your primary accounting tool in just a few clicks.
Cash flow is better when you make and receive payments on time. Through the help of a software and apps invoicing feature, customers can receive payment notifications on time and on scheduled dates. Be a responsible seller and schedule payments to your suppliers, too, through the help of the tools you have.
As a Shopify seller, inventory management is a task that will occupy your time. You need visibility on how many items you still have, which items to replenish, and which ones have enough supply. You also need to see the shipping, storage, and fulfillment costs. These will help you determine which delivery method is best for your business.
Selling on Shopify requires you to charge sales taxes when applicable. The thing about sales taxes is that they are sensitive to change. When you have apps and software that keep these changes on track, you can charge the correct sales tax every time.
Accounting software allows you to efficiently compute your income and pay the correct dues during tax season.
Finally, having automated tools allow you to generate reports anytime and in just a few clicks. Because your books are automatically updated, the reports you’ll get are always the latest ones. Since the software is accessible on mobile devices, you can check the health of your Shopify business wherever you are.
Do you ask yourself what accounting software is compatible with Shopify? You are on the right track if you are looking into investing in accounting software. If you haven’t yet done so, waste no time and choose among these top accounting software for Shopify.
QuickBooks will always be the right choice for your Shopify accounting software. This software has all the features businesses need to manage their finances. It has a live bookkeeping feature that ensures your books are backtracked and are up-to-date.
It helps you manage your payroll with projects, time tracking, automated computation, and doling salaries. Making and getting payments will also be more accessible because of the software’s invoicing feature. Skip the hassle of worrying about your Shopify inventory, as QuickBooks has inventory management, too.
Not far behind in the list of the most reliable accounting software for Shopify is Xero. Xero also has invoicing features. Your clients and customers can automatically receive payment requests on time so that you can receive payments on time too. You can also receive payments from various channels because of the software’s payment integrations.
Xero offers bank connections, so the deposits and withdrawals in your bank accounts will all be accounted for. Do not worry about not paying people and projects correctly and on time, as Xero has time tracking, project tracking, payroll tools, and various integrations.
Business owners like you will love Xero Analytics, a feature for report generation and financial forecasting.
Sage50 cloud, previously known as Peachtree, is another reliable accounting tool, but this software industry-specific assistance is unlike Quickbooks and Xero. Sage50 cloud has accounting assistance focused on construction and real estate. But this does not mean it is not the perfect tool for your Shopify business.
Sage50 cloud is still an efficient ecommerce accounting tool because it tracks your income and expenses, does accounting, has time and project tracking features, and can generate unlimited invoices.
If you've grown your Shopify business and have built a larger team, you can manage them through Sage’s human resource management function.
You'll find FreshBooks appealing if you have just begun your business and are looking for a tool for basic accounting. The software has customizable invoice templates you can send to customers for payment reminders and requests. Receiving payment is easy because you can link credit cards and various payment gateways.
The tool also has an optical character recognition (OCR) technology that lets you take pictures to convert to data that will be categorized in the books. You can access these data and financial insights on a computer or mobile device. Time and project efficiency is also recorded with FreshBooks.
Can you now see the convenience and efficiency software brings? But that’s not all! Software can further help you when you link other applications and integrations with it. You can enjoy the convenience of having all your data in one place.
Be sure to reap these benefits by using the following tools compatible with Shopify.
Now that you know the reason behind the investment and have a list of specific tools you can use for your Shopify business, it’s time to choose which software to use.
And if you need assistance in managing these tools and your Shopify bookkeeping, we can help you! Unloop offers bookkeeping services using the latest bookkeeping and accounting software. Let us help you make the most of the technology available. Call us now!
Admit it or not, one of the best parts about any employee’s job is getting their monthly wages. After all, salary is one factor that motivates employees to complete and accomplish their tasks efficiently.
It’s crucial for any business owner, big or small, to ensure that their employees receive the hard-earned money they deserve after a job well done. However, making mistakes and creating lapses during payroll processing is inevitable, given the dizzying amount of money you have to handle manually—and nobody wants that.
Hence, payroll automation is here to help. An automated payroll system allows you to pay your employees with no sweat. Let’s delve into the depths of automated payroll systems and learn what they’re all about.
Before we get into the nitty-gritty details of payroll automation, it’s crucial to understand the processes behind payroll. As you might have already guessed, payroll involves accurately giving your employees their monthly salaries on time.
Besides calculating the amount of money they will receive, you will also have to track the hours they’ve worked and how you will distribute their wages in an organized manner.
Additionally, you have to consider several other factors, such as payroll taxes, sick and vacation leaves, holiday and overtime pay, bonuses, reimbursements, and other employee benefits.
To any business owner without an established finance team, these tasks may become too confusing and daunting to handle on their own. Learning how to do these accounting tasks accurately also takes much time and effort.
Fortunately, you won’t have to stress too much over perfecting these tiresome payroll processes by automating payroll because an organized system will do it for you. A computerized payroll system will simplify and speed up how you calculate and distribute your employee’s paychecks.
An automated system can do the following processes:
You might still be skeptical about streamlining your payroll tasks to organized software. To ease any of your worries, we’ve gathered a few reasons why automated payroll can transform your business for the better.
Time is precious and should not be wasted. When you’re operating and handling a business, even the tiniest moments count. Hence, it’s only logical that you spend your minutes wisely.
You would have to spend hours upon hours doing manual data entry for payroll when you could be doing other more important business matters. An automated payroll system allows you to allocate more of your time to other tasks.
Even the slightest mistake can cause grave consequences when calculating employee wages since payroll is primarily about giving employees the money they deserve. The payroll team must ensure accurate and timely wage distribution.
However, with the dizzying amount of accounting and recordkeeping tasks involved in payroll, some people will inevitably make mistakes and unintentionally issue inaccurate payments to employees. These errors can cause financial issues for both the employee and the employer and lead to severe legal penalties.
Precise and accurate payment calculations are guaranteed with a computerized payroll system. The software can correctly and swiftly compute and adjust an employee’s pay while taking possible wage deductions, raises, bonuses, and more into account.
One of the most confusing and headache-inducing parts of payroll processing is the deduction and filing of taxes. Getting this part right is crucial as it involves local laws and regulations. An error may likely result in legal trouble for your business.
With automated payroll systems, you don’t have to calculate all of your employee’s gross pay and take out tax deductions on your own. You can let the software accurately figure out and navigate the complicated world of tax filing.
Using automated payroll software can also benefit your employees. Most automated systems allow employees to access their paychecks easily to view possible changes in their regular wages.
They will also be able to update and input their payroll information easily using automated systems. Because of this feature, the system can smoothly adjust employee pay stubs according to these changes in real time.
Most importantly, paying employees with an automated system can indirectly improve your relationship with them. As mentioned, receiving befitting compensation for their work is one of the primary ways to motivate employees. With computerized payroll systems, employees are guaranteed accurate and timely pay.
Moreover, with the transparency that automated systems provide, you can improve and develop trust and confidence in your employees. Your employees will feel secure knowing that you will pay them what they're due.
Manually handling your payroll may seem like a breeze at first, but as your business grows, it will become more complicated and time-consuming. The sooner you implement payroll automation, the more time and resources you’ll save.
Hopefully, the benefits mentioned above are enough to convince you to start automating your payroll. Naturally, your next course of action is to learn how to switch from manual to automated payroll. You can either use payroll automation software or hire a payroll service to assist you.
You can take matters into your own hands by searching for a payroll automation software that suits your business. Choosing a payroll software will primarily depend on the size of your company, your business needs, and other related factors.
Besides the payroll software cost, here are some features you must consider:
Besides calculating your employee’s wages, automated software can also provide regular comprehensive payroll reports that can help you monitor your finances. Some even use combined HR and payroll software for more efficient employee and payroll management.
Once you’ve made your choice, all you have to do is input the necessary payroll data and documents, such as employee information and tax forms, into the software. Ensure that what you’ve placed in the system is accurate to avoid any financial errors.
You can also get management assistance from professional payroll services that use automated software. Payroll services will come in especially handy for owners of large corporations and businesses with a large number of employees.
All you have to do is track your employees’ work hours and forward this data to the service provider. The service will calculate the payroll amount based on the hours an employee has worked and deduct taxes from their paychecks before subsequently rolling them out during payday.
Payroll is part and parcel of any business, no matter the industry. Plenty of accounting tasks are needed to process payroll, from tracking your employees’ work hours to delivering their wages on time. And while these tasks can be done independently and manually, doing so will be time-consuming and may lead to unintentional errors.
Get stress-free automated payroll management with Unloop’s payroll services. Our team of professionals uses payroll tools like QuickBooks that will ensure automated, organized, and efficient payroll processing.
Book a call with us today!
Accounting helps you keep an eye on your finances and make sure that your decisions are based on the financial status of your company. Accounting is already challenging as it is, but no matter how complicated, you must try to learn it. You know that the task is essential for the success of your venture.
Part of learning accounting is also being aware of the challenges you may face. Knowing the roadblocks early will help you avoid them or be prepared in case you face them. We’ll also give you some software suggestions to help solve your problems.
Let's go straight to the most complicated part, even more complex than learning accounting itself—the problems you’ll face. Note that these problems are common, so your chances of experiencing them are high. Yet, knowing them will lessen the fear and let you prepare ahead of time.
Individuals who manually input details from physical receipts and documents may commit mistakes. Worse, because the documents are hard copies, they easily get lost or destroyed. The problem of errors in the book can be rooted in a manual accounting system through the use of Excel sheets.
Lack of automation also means several Excel sheets containing various financial information about your business are collated. To put all details in one sheet, a rigorous process of adding formulas and rules occurs where human error may happen. This file may also be corrupted and unrecoverable because it is saved on one single computer.
Shopify has a built-in inventory management system that you can utilize to ensure that your products are in stock, that you have visibility on storage costs, and that you can optimize your fulfillment.
Although Shopify provides this valuable information, you can only make the most of it if you integrate it into your main accounting system. The integration lets you see how your Shopify inventory affects your business operations.
You can extract the data and collate it with your books on an Excel sheet. But again, this process is more error-prone than integrating Shopify inventory data into the accounting software you invested in.
As an ecommerce seller, you need to study sales taxes. When applicable, you need to charge your customers with it as they check out. Shopify helps sellers like you by setting the sales tax and including it in the details customers see when they checkout. However, the platform does not collect nor remit these taxes. Those accounting tasks will be yours to handle.
It is a common mistake not to invest in accounting or tax software to help you with the computation, collection, and remittance. Doing it alone can increase the chances of wrong calculations and remitting the wrong tax amount.
Failure to get payment from customers on time or the inability to pay suppliers right away affects your cash flow. It is even more challenging when you are doing cash-based accounting, as you won’t get a complete view of your finances. You may spend more than you should, not knowing that there are pending costs you still need to pay. You may also become too thrifty, holding off on investing because some income is not recorded yet.
The root cause is not using accrual accounting. With manual accounting, you don’t get invoicing features that automate payment reminders for both your customers and your business, so you avoid losing out on income.
The advantage of knowing the challenges you’ll face when doing your Shopify accounting is that you’ll have the chance to do it right. Aside from keeping in mind the problems you might face above, here are more tips on ensuring your Shopify accounting is done correctly.
The first correct step you can do for your Shopify business is to invest in accounting software. The software will allow you to track income and expenses. You won’t worry about tax season when you have this data.
You can also integrate the data Shopify provides in this central accounting tool to have all your business’s financial data in one place. You’ll get many solutions from software, like accrual accounting, invoicing, bank reconciliation, different payment gateways, and more! All of which are meant to automate your processes and avoid human errors.
Shopify also provides inventory and sales tax data. Pick an accounting software compatible with Shopify to integrate the available information in the platform into your accounting tool. When integrated, the data from Shopify automatically goes into your accounting tool—categorized and organized. This process skips the hassle of using Excel sheets and zeroes out manual input. Hence, your data will always be updated and accurate.
Though you won’t have to rely on manual input, to ensure that your data is accurate, make it a habit to check your books regularly. Add this task to your daily routine, so the details you need to check are manageable. You can also address discrepancies and fraud right away when you diligently check.
Finally, make the most of your accounting software by generating the following reports:
Make sure you always look at the numbers before making any decision about your Shopify store. Whether it’s about your purchasing arrangements for your inventory, or if you’ll scale your business, the financial data from an accounting report should be your guide. It will help you plan how to spend your profit wisely.
You might have realized that many of the challenges mentioned above happen because of the need for more reliable software. Meanwhile, getting your Shopify accounting right means having an accounting tool to track and organize your business finances. You’re right on both counts! With that, here are some accounting software that integrates with Shopify to invest in.
Use QuickBooks so that you can handle your bookkeeping correctly. After signing up for a plan, QuickBooks will let you partner with a bookkeeper who will backtrack transactions if need be. From then on, your books will constantly be updated.
You can track your income and expenses, and these details get organized accordingly in the books. You won’t have any issues with manual data input as you can take pictures of physical receipts and documents to be included in your data pool.
The tool also handles bank connections, integrations to various payment gateways, invoicing, and payroll management.
Accrual accounting ensures you see income and expenses in a certain period instead of looking at your present-day finances. You’ll get this feature with Xero. You do not have to manually input financial data, as the software is an automation champion. You can send invoices with the “Pay Now” button to receive payments immediately. You can also make these invoices recurring for regular transactions.
Connect your bank accounts, credit card, and other payment gateways to the software, so all transactions in these channels are recorded. Have visibility of your Shopify inventory on Xero by integrating the data there. With complete financial data, tax season, and data reporting will be easier for you.
Sage50 cloud, previously known as Peachtree, is a reliable Shopify accounting tool for many reasons. To begin with, the tool handles your business accounting needs, from tracking your income and expenses and sending invoices, to monitoring time and projects.
This software is a step ahead by ensuring that even the human resource needs of a company are handled. If you grow your Shopify store with a bigger team, you can utilize this feature. Sage50 cloud also has construction and real estate-specific accounting features.
We hope that what you’ve read has prepared you to face any Shopify accounting challenges head-on. You can use the tips on getting accounting right to ensure you’ll overcome challenges when facing them. And, of course, you can keep problems at bay by investing in an accounting software as soon as you launch your Shopify store.
If you need assistance in bookkeeping and accounting, or in using the tool you choose to invest in, know that assistance from experts is always available. We at Unloop can be your partner. We use the latest and most credible accounting software to keep our clients' books organized. We’ll do the same for you.
Give us a call now and let’s discuss our offers.
Learning how to calculate accounts receivable is an important step towards better financial management, and the reason is obvious for anyone that owns a business; nobody wants to forget the money they're owed, especially when it's a huge amount.
In this blog, we'll discuss everything there is to know about accounts receivable, the formulas involved in calculating it, and why you need to keep tabs on this account that's on your company's balance sheet.
For starters, let's discuss what accounts receivable is. The short of it is that it's the money that customers owe a business on credit. But how does that happen exactly?
Accounts receivable are recorded on the business's books when a customer receives goods or services from the business but can't pay at the time of purchase.
For example, an Amazon seller may provide products to a client and invoice them for the products. If the client does not pay immediately, the amount owed by the client for the products is recorded as an accounts receivable.
Accounts receivable can also be accrued through installment payments or financing arrangements, such as when a customer purchases a product on credit and pays for it over time.
During the pandemic, many businesses learned that proper accounts receivable management can lead to sturdy financial positions. You see, accruing accounts receivable allows businesses to provide flexibility to their customers while still being able to track and manage the money owed to them.
Owing money can also work both ways. With accounts receivable, a business is owed by its customers for every product or service it sells on credit. Accounts payable is the opposite. It happens when the business owes its vendors or suppliers money for goods or services received but has yet to pay for them.
On the balance sheet, both accounts are recorded differently. Accounts receivable are recorded as assets, while accounts payable are considered liabilities.
A good balance between accounts receivable and accounts payable is critical for maintaining a healthy cash flow and financial stability.
Accounts receivable is only recognized as an asset when a business has a legal right to receive payment from a customer for goods or services that have been provided but not yet paid for.
Accounts receivable are classified as a current asset because it is expected to be collected relatively quickly, typically within 30 to 60 days. As such, accounts receivable represent an essential component of a business's overall financial health, as it reflects the amount of cash the business expects to receive soon.
Under the cash basis accounting method, accounts receivable are only recorded once payment is received. Any sales made on credit or outstanding invoices are recorded as revenue once the payment is received. Hence, the accounts receivable balance remains zero until the customer pays.
On the other hand, under the accrual accounting method, accounts receivable are recorded as soon as the sale is made or the service is provided, even if payment has yet to be received. This means that the revenue is recognized at the time of the sale or service, regardless of when payment is received. The accounts receivable balance reflects the total amount owed by customers as of the end of the reporting period.
So how do you calculate accounts receivable? Do you rely on accounting software to handle everything financial-related? Do you hire an accountant to deal with the math?
The truth is, it's best if new business owners like yourself understand how it's calculated to better maneuver net sales and other essential accounts in your day-to-day transactions.
Currently, there are two standard methods for accounts receivable calculation: the balance sheet method and the aging method.
The balance sheet method involves taking the total accounts receivable balance on the balance sheet and subtracting any allowances for doubtful accounts.
The allowance for doubtful accounts is an estimated amount of uncollectible debts based on experience or other factors. The result is the net accounts receivable balance, which represents the amount the business expects to collect from its customers.
Accounts Receivable (AR) - Allowance for Doubtful Accounts (ADA) = Net Accounts Receivable (NAR)
The aging method involves categorizing the accounts receivable by the age of the invoice or outstanding payment. Typically, businesses will group the accounts receivable in 30-day intervals, such as current, 1–30 days, 31–60 days, and so on.
For each age category, the business estimates the percentage of the outstanding balance likely to be collected. This percentage is based on historical data or industry averages. The sum of the estimated amounts for each age category is the total estimated accounts receivable balance.
(Amounts outstanding up to 30 days × Estimated percentage collectible) + (Amounts outstanding 31–60 days × Estimated percentage collectible) + (Amounts outstanding 61–90 days × Estimated percentage collectible) + (Amounts outstanding over 90 days × Estimated percentage collectible) = Total estimated accounts receivables
The balance sheet method is simple and quick but provides less detailed information on the accounts receivable than the aging method.
The aging method takes more time and effort to calculate, but it provides a more detailed breakdown of the accounts receivable by age, which can help determine which invoices are most overdue and require immediate attention.
Ultimately, businesses should choose the best method for their needs and resources.
Analyzing accounts receivable is vital for cash flow, financial planning, and risk management. It allows businesses to identify areas where they may be experiencing delays in payment or facing issues with collection, enabling them to take corrective action and improve their cash flow.
By understanding the trends and patterns in their accounts receivable, businesses can make more accurate financial projections and plan for future growth.
Now, there are several metrics that businesses can use to analyze accounts receivable. Here are some of the most commonly used ones.
This ratio measures how often a business collects its average accounts receivable balance during a given period. The accounts receivable turnover ratio formula is:
Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
A high ratio indicates that the business is collecting its receivables in a timely manner, while a low ratio indicates that the business is taking a long time to collect its receivables or needs a better collection process.
DSO measures the average number of days it takes for a business to collect payment on its sales. The formula for DSO is:
DSO = (Accounts Receivable / Net Credit Sales) x Number of Days in the Period
Unlike the accounts receivable turnover ratio, a lower DSO indicates that a business collects payment more quickly. In comparison, a higher DSO indicates that the business is taking longer to collect a payment, which can lead to cash flow problems and may require additional efforts to improve the accounts receivable collection process.
This ratio measures the percentage of accounts receivable the business writes off as bad debt. The formula is:
Bad Debt Ratio = (Total Bad Debts / Net Credit Sales) x 100
A lower lousy debt ratio indicates that the business effectively manages its accounts receivable and minimizes the risk of bad debts.
This metric measures the average number of days it takes for a business to collect payment on its accounts receivable. The formula is:
Average Collection Period = (Accounts Receivable / Net Credit Sales) x Number of Days in the Period
A lower average collection period indicates that the business is collecting payment more quickly, while a higher average collection period indicates the business is taking a long time to collect payment.
In the same way that we ought to calculate accounts receivable accurately, we want to be sure that we're managing collections responsibly. The goal is always to what your company collects so we can avoid future financial difficulties and maximize the company's ability to generate revenue.
To better manage your accounts receivables, here are a few tips that can help:
In conclusion, calculating and managing accounts receivable is critical to a business's financial health. It is important to regularly analyze accounts receivable, identify issues, and implement effective strategies to manage them.
At Unloop, we understand that and want to ensure you succeed.
By working with our accounting experts, you can focus on running your business while we handle your accounting needs, ensuring that your business stays on track and financially healthy—we’ve even got accounts payable services!
Contact us today to learn how we can help you manage your accounts receivable and achieve financial success.
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.