The 4 Essential Bookkeeping Reports Every eCommerce Business Needs

6 October, 2020
Wayne Richard

Wayne Richard

5 minutes
Business financial reports

Poor financial data and intelligence has destroyed many eCommerce businesses.

Your financial reports tell you a story about your business so you can make smart decisions. 

Can you afford that new employee?

Should you increase your PPC ad budget?

Does that product actually make money?

These are questions you have to ask yourself regularly to ensure the health of your company. 

Without information at your fingertips, you’re apt to miss opportunities or make decisions based on bad information.

In this post, we’re going to look at the top 4 eCommerce financial reports that all entrepreneurs should review on a regular basis, including: 

Why is it important to have access to good financial data?

Financial reports allow you to make data-driven decisions to fuel your business’s growth plans. 

  • It helps you price your products accurately.
  • It keeps you honest with your tax agency so you don’t pay penalties and interest.
  • It helps you know whether you’re making money (across your entire operations and on each individual SKU) 
  • It helps you make good decisions when hiring, borrowing money, and working with investors.
  • It tells you where your actual budget varied from your predictions.
  • It helps you understand when it’s time to scale your business.

There are many different types of financial reports. 

As your business grows, your reporting needs will grow too. You may even have to create a report that’s entirely unique to your business.

But, here are four financial reports every eCommerce business should produce. These will help you take great steps toward understanding and controlling your money. 

The 4 financial reports that all sellers should be monitoring 

1. Balance Sheet

Xero Balance Sheet

A balance sheet allows you to analyze your business from a 50-foot view. It shows all of your assets – i.e. what you own – alongside your liabilities – what you owe.

Your assets include cash and anything you can convert to cash within a year, such as inventory, prepaid expenses, accounts receivable, etc.

Fixed assets include things such as equipment (furniture, manufacturing tools, vehicles, etc.) and property. Generally, fixed assets are things you don’t intend to sell or couldn’t sell quickly to raise cash.

The second half of your report shows your current liabilities. There are two types of liabilities: short-term and long-term. 

Short-term liabilities include accounts payable and taxes. 

Long-term liabilities include debt and financing, like bank loans or notes payable to shareholders. Owner’s equity includes any invested capital or retained earnings. 

Your Liabilities and Owner’s Equity tell the story on how you’ve financed your company so far, either through debt, profits called retained earnings or owner’s contributions.

Related Reading: 6 Ways to Access Short Term Financing For Your Startup


2. Profit and Loss (P&L)

P&L Statement


A Profit & Loss Statement is an indication of the business’ financial performance over a particular period of time – usually a few months or a year. It can be used to pick up on trends, monitor particular KPIs and predict future performance. 

P&Ls are also called income statements.

The P&L tracks sales and expenses. The difference between these two data points is your net profit. 

The calculation is fairly straightforward: Income minus the cost of sales equals your gross margin. Your gross margin minus your fixed operating expenses and customer acquisition equals your net profit.

If your net earnings are positive, you’re making a profit. If they’re negative, you’re operating at a loss. 

Unlike your balance sheet (which shows your financial position at a point in time), your P&L shows sales and expenses over time. This is why it’s important to consider costs beyond your cost of goods sold (what you need to sell your service/product). You should also account for things like insurance, payroll taxes, equipment repairs, legal fees, utilities, interest, depreciation, etc. 

Pro Tip: We recommend reviewing your expenses on a regular basis – at least quarterly – to make sure you are intentional about your spending.  

In addition, reviewing your P&L can help you identify trends – such as sales spikes, seasonality, overspending across certain categories of expenses, etc. 

3. Cash Flow Forecast

Xero Cash Summary

The cash flow forecast is like your business’s crystal ball. It helps you predict cash surpluses and shortages long before they happen so you aren’t surprised.

A cash flow forecast shows your predicted cash inflows and outflows. 

Cash inflows are cash sales, loans, investments, and accounts receivable collections. 

Outflows are expenses paid, assets purchased, inventory, draws, distributions, and other payments.

Now, let’s take a couple of examples where a cash flow forecast would be beneficial.  

  1. You pass on an opportunity because you don’t think you can afford it. Later you realize you had plenty of cash all along, but miss out.
  2. You invest in an opportunity because you think you have plenty of cash. Later you realize you can’t afford it, so you have to pay with credit or forgo something else.

Both scenarios are inefficient and wasteful. If you’d had a better understanding of your cash situation, you could have made a smarter decision. This is why it’s important to create a regular cash flow forecast.

Understanding your future cash situation is important if you ever need to purchase equipment, buy subscription services, secure loans, or hire new staff. A cash flow forecast would tell you if these expenditures are possible or if you need to grow sales first, or if new expenses would actually put you in a weaker position.

Admittedly, the cash flow forecast can be difficult to produce and understand, which is probably the primary reason so many eCommerce businesses skip it.

However, working with an eCommerce bookkeeping firm – like Bean Ninjas – can help you create and analyze your cash flow forecasts, so that you can make informed decisions. 

4. Inventory Forecast  

Inventory forecasting is the process of gauging future sales volumes based on your recent and predicted sales trends. A great inventory forecast will consider all of your SKUs, sales velocity, and seasonality. 

This allows you to make informed decisions about how much inventory to order at a given time, what products to order, and when to order it.  

Inventory management is both an art and science, since you want to make sure you have enough product to handle any unexpected demand but not so much excess inventory that it is sitting untouched in a warehouse.

This becomes even more important to get right if you have any products related to trends or things that have expiration dates like food, drinks, and supplements.

Establish a Reporting Schedule

We’ve discussed four eCommerce financial reports that are critical for every business. However these reports aren’t much use if they are provided months after the end of the reporting period and are out of date by the time you look at them.

It is difficult for a small business to have these reports available on a daily basis (because it takes time to prepare and check the reports), but you should establish a regular reporting schedule (ideally monthly) with due dates. You should also create time on your calendar to review your financial reports. (One way to spend more time reviewing your figures and making decisions would be to outsource your bookkeeping).

For the last five years, we’ve managed the books and created countless reports for eCommerce entrepreneurs. We also help them understand and leverage their reports to meet their needs. Want to learn more about our process? Schedule a call today.

Posted By

Wayne Richard

Wayne Richard

Wayne is a management accountant who forged a 15-year career with tech heavyweight Hewlett Packard before starting his own cloud accounting firm in Tucson, Arizona. Fate (and the Internet) brought him to discover Bean Ninjas via a blog post. Two years later and Wayne’s involvement with Bean Ninjas had grown from a blog comment to contractor to equity partner. When Wayne isn’t managing a global team and equipping entrepreneurs with the financial tools they need to enjoy business success and lifestyle freedom, he’s being an everyday superhero to his wife and five children. Wayne is Bean Ninjas resident e-commerce expert.

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