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Having a hard time managing finances for your online business? This article serves as a guide to simplify the ecommerce bookkeeping process, highlighting its benefits and best practices.
What is Ecommerce Bookkeeping?
Ecommerce bookkeeping accurately maintains, manages and organises all financial transactions of your online business. The process includes tracking everything from sales to expenses, inventory, taxes, and payments via multiple cashflow systems such as Shopify and eBay.
Bookkeepers meticulously track all economic activities related to your online business, ensuring accurate reporting and compliance with HMRC tax regulations.
Maintaining elaborate financial business records helps optimise profits, mitigate errors, and gain financial clarity whilst streamlining your ecommerce business operations in the long run.
Benefits of Ecommerce Bookkeeping
Ecommerce bookkeeping is significant for your online business’s sustainability and success in the long run.
A few benefits of ecommerce bookkeeping are:
- It helps track financial records accurately and provides an up-to-date review of your online store’s overall economic health.
- It helps ensure all revenue and expenditure records are appropriately organised and tracked.
- It helps enhance tax compliance by streamlining tax return filing, reducing your risk of errors and penalties whilst allowing you to claim tax reliefs.
- It helps improve cash flow management by clearly illustrating where the cash is coming from and going to.
- It helps forecast and budget your online business’s financials, which leads to early identification of your business’s cash flow.
- It helps make informed business decisions by providing valuable data insights regarding sales trends, pricing, marketing, inventory management, expansion and profitability.
- It helps streamline inventory management by tracking inventory levels and the costs of goods sold (COGS).
- It helps prevent overstocking and stockouts whilst improving your inventory turnover.
- It helps efficiently process payments by simplifying transaction reconciliation from different payment gateways as it mitigates discrepancies and errors. It also allows you to manage refunds and chargebacks.
- It helps attain scalability by providing a firm financial footing for increased turnover whilst adapting to the ever-transforming market environment.
- It helps save valuable time that you can invest in other aspects of your business whilst reducing stress and frustration with the finance department and allowing you to build your business.
Essential Ecommerce Bookkeeping Practices
For online businesses to grow successfully, it is crucial to adopt good bookkeeping practices. Here are some essential ecommerce bookkeeping practices:
- Accurately record all transactions, including sales, fees, and expenses, ensuring nothing is skipped.
- Consistently track revenue from all income channels, such as your Shopify store, whilst clearly distinguishing between product sales and revenues.
- Categorise and track all business expenditures, including costs for marketing, shipping, and platform fees. It helps you comprehend your ecommerce business cost structure.
- Implement robust inventory practices such as tracking stock levels and using approaches like FIFO and LIFO to calculate the COGS. It also helps maintain accurate inventory movement.
- Determine gross profit margin by precisely calculating your costs of goods sold.
- Routine payment reconciliation between gateway transactions such as credit cards and credit card company with your bank statements and accounts for chargebacks is necessary.
- Ensure your equity and liabilities are accurately recorded if your online business is a limited liability company.
- Consider hiring or seeking assistance from a professional bookkeeper or accountant to ensure accuracy. They can also guide you on whether to use accrual accounting or flat-rate cash accounting approaches for your business
- Stay compliant with HMRC with accurate VAT and sales tax calculations and claiming tax reliefs.
- Generate and maintain correct invoices for all your sales.
- Leverage bookkeeping software such as QuickBooks or FreshBooks to generate automated financial statements.
- Create and review cash flow statements to monitor cash flow whilst ensuring you have sufficient cash on hand.
- Regular analysis of financial statements such as income statements, profit loss statements (P&L), and balance sheets assist you in tracking your profitable gains.
Leveraging Ecommerce Bookkeeping Services
Leveraging ecommerce bookkeeping services can help you save time by automating tasks whilst connecting with professional bookkeepers and accountants. Managing all financial records, payment gateways, and multiple sales channels is time-consuming. Hence, outsourcing this assignment can help you focus on growing, developing your business and improving your client relations.
Whether it is your daily transactions, tax preparation, or financial reporting, our Legend Financial experts offer assistance with e-commerce bookkeeping and have targeted experience in online platforms such as Shopify and payment gateways.
Choosing the Right Ecommerce Bookkeeping Software
Choosing the right ecommerce bookkeeping software assures accurate financial reporting and tax compliance and mitigates the chances of human errors as the software automates critical tasks like payment reconciliation, sales tracking from multiple platforms, and inventory management. Popular bookkeeping software includes QuickBooks Online, FreshBooks, and Xero. You can leverage a free trial period to test the software’s suitability or check this list of commercial software suppliers of record-keeping applications.
Understanding your business needs is essential for choosing the right cash flow management software. Assess your sales, the platform you use, such as Shopify or Amazon and whether your business requires a robust inventory management system. Then, research for ecommerce bookkeeping software that easily integrates with your online business platform and payment gateways.
FAQs on Ecommerce Bookkeeping
Is ecommerce bookkeeping in demand?
Yes, ecommerce bookkeeping is highly in demand due to the rapid growth of the ecommerce industry, online sale intricacy, inventory management, tax compliance, and the need for making data-driven decisions.
What is the one biggest challenge about online bookkeeping accounting?
Reconciliation of sales from multiple platforms and accurate payment data is the biggest challenge of online bookkeeping accounting.
What is the difference between cash and accrual accounting?
The difference is that accrual accounting records are used when the transaction occurs, and cash accounting records are used when the cash changes hands.
How do you handle chargebacks and refunds?
You can record chargebacks and refunds as deductions from your sales revenue.
What ecommerce expenses should be tracked?
As an online business owner, you must track marketing, platform fees, shipping, and inventory costs for your ecommerce business.
Get Expert Advice from Legend Financial
Mastering ecommerce bookkeeping is not optional but necessary for online businesses to survive and grow in 2025. Precision and adaptability are required to leverage bookkeeping software whilst managing complex multi-channel sales and tax compliance. At Legend Financial, we offer tailored bookkeeping solutions to empower your online business to thrive.
