The major reason why eCommerce businesses fail is due to a lack of clarity and oversight into how cash is spent. It gets pretty hard to maintain your records when there are so many transactions per day. That is where eCommerce bookkeeping comes in. This guide shall walk you through what eCommerce bookkeeping entails, its key aspects, best practices, common challenges, and when to seek professional help.
Basically, bookkeeping means recording each monetary transaction taking place in business. For an eCommerce business, this surpasses mere bookkeeping of sales and expenses to incorporate multiple sales channels, various payment gateways, different currencies, and their tax obligations. In a nutshell, bookkeeping in eCommerce involves keeping a comprehensively neat record of all the financial activities a web business undertakes.
Accurate bookkeeping lets you know how your business is performing. It helps in managing cash flow, and making tactical decisions, among others, to put you on par with tax obligations. The next section shows what makes eCommerce bookkeeping different.
What is eCommerce Bookkeeping?
eCommerce bookkeeping is a specialized version of bookkeeping, targeting the needs of online businesses. Apart from brick-and-mortar stores, an eCommerce company has to address some very specific areas: online transactions across different countries, digital payments, multiple sales platforms, and complex tax rules.
While the essence of eCommerce bookkeeping may involve recording all sorts of business transactions, it refers to recording sales, expenses, refunds, and fees derived from the many available online marketplaces, such as Amazon, eBay, or Shopify. It also involves reconciling accounts from payment processors like PayPal or Stripe, handling the cost of goods inventory, and calculating COGS.
Key Aspects of eCommerce Bookkeeping
1. Tracking Sales and Revenue:
Accurately tracking sales and revenue is one of the most important aspects of eCommerce bookkeeping. Sales can occur from various places: third-party, own, etc. Each of these will have different fees and policies incurring on it. Bookkeeping sees to it that such information is recorded rightly.
2. Calculating Cost of Goods Sold (COGS):
Knowing the cost of selling your product is very important. This could be raw material costs, shipping costs, and any other direct costs. Calculating your COGS correctly is quite important; this aids in making informed decisions on knowing gross profit and making better decisions on pricing among many other things.
3. Inventory Management:
Inventory management is an integral part of any eCommerce business. Inventory directly affects your financial statements and your cash position. Correct bookkeeping is the backbone of inventory management to keep you ahead with your stocks and those that need to be ordered.
4. Managing Returns and Refunds:
Returns and refunds are part of running any eCommerce business. These should be kept in books of accounts accurately, as these have an effect on income, inventory, and sometimes even taxes levied.
5. Sales Tax Management:
Many times, an eCommerce business sells across states or countries that may have different regulations regarding taxation. Good bookkeeping will help manage these obligations and allow compliance with diverse sales tax laws.
6. Payment Gateway Reconciliations:
There are many different payment processors through which an eCommerce business has to go. The reconciliation of these accounts then becomes very important. Proper bookkeeping ensures that the cash being reflected is indeed the cash on hand and there will be no discrepancies.
Best Practices for eCommerce Bookkeeping
1. Automate Processes Where Possible:
Consider to integrate accounting software with your eCommerce platform to automate importing sales and expenses. This automation cuts down on manual errors and saves valuable time.
2. Regular Account Reconciliation:
Regularly reconcile your bank accounts, credit cards, and payment processors. This practice helps catch discrepancies early and keeps your financial records up-to-date.
3. Separate Business and Personal Finances:
Mixing business and personal finances can lead to confusion and complicate tax filing. By keeping them separate, you’ll simplify bookkeeping and simplify your financial management.
4. Monitor Cash Flow Regularly:
Keep monitoring your cash flow closely to maintain sufficient liquidity for covering expenses. This is crucial in eCommerce, where shipping costs and platform fees fluctuate due to various factors.
5. Pay Attention to Your Tax Requirements:
Tax compliance is crucial for your business. Leverage software that automates tax calculations or partner with a specialized tax advisor who understands eCommerce-specific tax rules to ensure accuracy and efficiency.
6. Outsource When You Need To:
As your business expands, managing your books becomes more complex. By outsourcing bookkeeping services, you let experts handle the intricacies that come with growth, allowing you to focus on scaling your business effectively.
Read Also: Top 7 Bookkeeping Tips for Small Business Owners
Common Challenges in eCommerce Bookkeeping
1. Managing Multi-Channel Sales:
Selling on multiple platforms generates diverse streams of sales data, making it crucial to organize and record this information meticulously. Proper data management is essential to prevent confusion and ensure smooth operations.
2. Handling Large Volumes of Transactions:
eCommerce businesses frequently manage a high volume of small-value transactions, which can be tedious and time-consuming. Automated bookkeeping software excels in this area, offering a significant boost in efficiency and streamlining the handling of these transactions.
3. Navigating Sales Tax Compliance:
Every region has unique sales tax rules, making it challenging for eCommerce companies to stay updated and compliant. Managing these rules effectively is crucial for smooth operations.
4. Reconciling Payment Gateways:
Handling multiple payment processors results in numerous records to reconcile. By maintaining accurate bookkeeping, you ensure that every payment is correctly recorded and accounted for.
5. Managing Returns and Chargebacks:
Returns and chargebacks impact not just your revenue but also your inventory and customer service. Accurately tracking these transactions in your books ensures your financial records are precise and reflective of your business’s true state.
When to Seek Professional Help?
There may come a point where managing the books in-house is no longer feasible. The following signs suggest it might be the time for you to seek professional help in bookkeeping:
1. Your Business is Scaling Up:
As your business grows, so does the complexity of managing finances. A professional will help smooth out the financial processes of your company and make sure everything is in its place.
2. Lack of Time or Expertise:
If bookkeeping takes too much time or is too difficult, that is when outsourcing becomes the key. Professionals will be able to handle all areas of eCommerce bookkeeping knowledgeably and with speed.
3. Complex Tax Obligations:
If you sell across more than one state or country, it’s tough to manage the tax compliances. It’s better that you hire a professional bookkeeper or tax advisor who can guide you through the complexities.
4. Multiple Sales Channels:
When you sell on multiple platforms, a professional can smoothly integrate all your sales data, ensuring your books are accurate and well-managed.
5. Need for Better Financial Insights:
Professional bookkeepers can give deep insights into the health of your company and help you make well-versed decisions to grow.
Conclusion
eCommerce bookkeeping is not all about maintaining your records; rather, it’s about grasping insights that will lead your business in the way of growth and profitability. From tracking sales to managing inventory and assuring tax compliance, effective bookkeeping is the backbone of any eCommerce business.
It gets very overwhelming, though, as all these tasks grow one by one over time, especially with the increase in your business. That’s where professional help becomes worth its weight in gold. At MeticMinds, we value the special challenges that an eCommerce business will go through. As your trusted accounting outsourcing partner, we’ll provide tailored solutions to meet your needs. Let us handle the numbers while you grow your business with confidence.