What’s the difference between eCommerce bookkeeping and accounting? A detailed guide to building your bookkeeping system and processes
The biggest reason that eCommerce businesses fail is poor cash flow management.
Luckily, this problem is easier to solve than say a lack of sales.
Setting up solid accounting and bookkeeping systems and processes can help you grow your eCommerce business and avoid major cash flow problems.
In this guide, we’re sharing everything you need to know about eCommerce bookkeeping.
- What is bookkeeping?
- What is eCommerce Accounting?
- What are the key bookkeeping differences for Amazon FBA and Shopify businesses?
- What are the benefits of bookkeeping?
- What does a bookkeeper do?
- How do you manage your eCommerce business books?
What is bookkeeping?
Bookkeeping is the process of recording and keeping track of all financial transactions (including purchases, sales, receipts, and payments) and outflows, list cost of goods sold (COGS), payroll and all related operating expenses, etc.
Having up-to-date books matters because it allows you to know how your business is performing at any given time.
With this, you are likely to experience a bunch of problems, including:
- Cash flow shortages
- Struggling to have funds available for restocking or to meet payroll
- Tax issues and fines
So, what’s the difference between accounting and bookkeeping?
The easiest way to think about this is that the accountant is like the chef and the bookkeeper is the prep chef.
The accountant uses the results that the bookkeeper provides to summarize, analyze, and report on the company’s finances.
What is eCommerce Accounting?
When you understand the basics of accounting, it can help you have confidence in your finances, stay compliant at tax time, and avoid unnecessary cash flow challenges.
Pro Tip: In our detailed guide to eCommerce accounting, we share a crash course to help eCommerce entrepreneurs set up the necessary systems and processes to take control of their business’s finances.
What are the key bookkeeping differences for Amazon FBA and Shopify businesses?
The underlying bookkeeping principles remain constant regardless of the type of eCommerce business you run.
However, there are some nuances for FBA sellers.
Pro Tip: If you are a FBA seller, check out our Amazon accounting guide to understand the ins and outs.
What are the benefits of bookkeeping?
Whether you’re selling products through Shopify, BigCommerce, Magento, Amazon, Etsy, or eBay, here are some of the top benefits for building out solid accounting and bookkeeping systems and processes.
- Get clarity around your business’s finances
- Build a more financially stable, sustainable, and profitable business
- Establish clear growth benchmarks
- Manage cash flow better in lean or uncertain times
- Set up cash flow and inventory forecasts
- Avoid scary tax letters, fines and penalties
- Make business decisions based on accurate data, not intuition
- Identify trends and spot potential problems early on
- Leverage data to increase customer lifetime value
However, the biggest benefit is to keep your business afloat.
As we mentioned earlier, the number one reason eCommerce businesses go out of business is a lack of cash flow.
If a business doesn’t have sufficient money in their bank account, there’s going to be problems.
What does an eCommerce bookkeeper do?
A great bookkeeper ensures that your financial records are up to date, transactions are properly categorized, and sends financial reports in a timely fashion.
The average hourly rate for a bookkeeper ranges from $10 – $40 USD / per hour.
When it comes to hiring a bookkeeper, you can hire one in-house as a full-time employee, use a freelance bookkeeper, or work with a third-party bookkeeping service, like Bean Ninjas.
For example, we won Xero’s Bookkeeping Partner of the Year in 2019. In addition to having years of experience working with Amazon and eCommerce entrepreneurs, dialed-in bookkeeping processes, and exceptional customer support, we also know the ins and out of the Xero platform and have relationships with people inside Xero that we can leverage for support. This is something you’d be hard-pressed to find if you hire an in-house bookkeeper in your city.
Pro Tip: If you have never hired a bookkeeper before, it can be an overwhelming experience, especially if you don’t have a financial background. Our detailed guide to hiring bookkeepers can be a great resource.
How do you manage your eCommerce business books?
Managing your eCommerce books becomes easier once you and your bookkeeper have the right tech stack in place and stick to a solid process.
Set up your cloud accounting tech stack
This starts with using cloud accounting software. While we are big fans of Xero, there are several alternative cloud accounting software options there, including Quickbooks, MYOB, Wave, and Sage Accounting.
Whether you decide to go with Xero, Quickbooks, or something else, this will be your central financial hub.
One of the advantages of using Xero is that it integrates with dozens of software that your business might already be using or could use to get more clarity around your numbers.
For example, here is the tech stack that we use with many of our eCommerce clients, like:
Weekly bookkeeping tasks
In addition, there are tasks that you should do weekly, monthly, and quarterly.
On a weekly basis, it is about keeping up to date on your transaction processing and reviewing for necessary adjustments to your chart of accounts. This ensures that you are always looking at the most accurate financial data, which is crucial for making any decisions that can affect your business’ growth path.
In addition, you’ll also want to be looking at key financial reports like your P&L statement, balance sheet, and cash flow summary statement.
Pro Tip: You simplify your financial reporting by creating a financial performance dashboard.
Monthly bookkeeping tasks
On a biweekly or monthly basis, this is where both cash flow and inventory management are crucial.
Here are some things you can do, including:
- Implement the Profit First framework for your eCommerce business to better manage cash flow and ensure funds are available to spend on inventory and any paid ad campaigns.
- Set up cash flow forecasts
- Use inventory management software – like DEAR and Inventory Planner – to manage and forecast inventory.
Quarterly bookkeeping tasks
On a quarterly basis, this is where you should be reviewing your business’s finances from the previous quarters, setting new growth goals, and making sure your reporting is in order.
Pro Tip: Spending a little time once a month or a quarter to ensure your taxes are in order can also avoid added stress and compliance issues at tax time. To avoid compliance or added stress at tax time.
Meet Your eCommerce Growth Partner – Bean Ninjas
Want help staying on top of your books? Schedule a free call to improve your cash flow and get more confident in your numbers.
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