Bookkeeping for eCommerce comes with its own uniquechallenges. While brick-and-mortar businesses may have more than enoughbookkeeping and accounting functionality with QuickBooks, eCommerce businessesoften need to supplement QuickBooks with third-party add-ons and programs. Thisis especially true for eCommerce businesses that sell across multiple platformslike Amazon, eBay, and Shopify. Failing to recognize the inherent differencesin eCommerce bookkeeping can even result in inaccurate profit and expensereports.
So, what are the biggest differences between eCommercebookkeeping and standard bookkeeping? What are some eCommerce bookkeepingservices to consider for your business? How can you manage bookkeeping for Amazonor eBay sellers? Finally, what is the best bookkeeping software for eCommercein general?
In this guide, we will answer all of these questions andmore, but first, it’s important to understand exactly what eCommercebookkeeping is and how it works:
Standard bookkeeping simply means keeping track of theincoming and outgoing flow of money for your business. This same definitionapplies to eCommerce bookkeeping, though the best ways of bookkeeping for abrick-and-mortar store can differ drastically for an eCommerce business. Thatsaid, like most traditional bookkeepers, an eCommerce bookkeeper must alsocategorize different types of income and expenses, track returned purchases,and review balance sheets.
At its core, bookkeeping tracks many of the same financialtransactions and records, regardless of the type of business. However, when youlook at the day-to-day operations of an eCommerce business compared to atraditional, brick-and-mortar business, the differences become much clearer.Consequently, the processes needed for accurate and up-to-date bookkeepingvary. Here are a few of the most important ways that bookkeeping for eCommercediffers from traditional bookkeeping:
Foreign transaction fees present an entirely different kindof issue for eCommerce. These fees can apply to both buyers and sellers.Traditional businesses generally see foreign transaction fees that are chargeddirectly to their bank accounts, with the fees designated by the paymentprocessor.
eCommerce businesses that make sales overseas have to dealwith varying kinds of foreign transaction fees, but they’re not always assimple to track. Managing these fees can be difficult, especially when they arerecorded differently by each eCommerce platform or payment system. This is madeeven harder with sales channels like Amazon, which often roll the cost oflocation-based fees into larger categories like “Administration Fees.”
When a physical retail business receives money in the bank,it is pretty easy to know how much constitutes business income. For example, ifthe business account receives a deposit of $1,000, the business owner canrecord income of the same amount. The vast majority of deposits are the resultof direct sales made by the business. Unfortunately, calculating both incomeand profits is a bit more convoluted for eCommerce businesses.
When a business receives a deposit from a sales channel likeShopify or Amazon, the amount received does not reflect income. This is becausethese platforms lump together more than one type of transaction to minimizetransfer costs. For instance, a deposit of $1,000 from Shopify could reflect$900 of income from direct sales, a “loss” of $250 from returned products andchargebacks, $150 in merchant fees, and $200 in shipping fees paid out bycustomers. Thus, attempting to do any kind of clean Shopify bookkeeping (or anyother sales channel) from bank deposits alone is virtually impossible as aneCommerce business.
This doesn’t even account for the complexities of calculatingeCommerce gross profits. A standard retail business simply needs to subtractthe cost of goods sold from the total revenue. The resulting figure is thegross margin (i.e. profits). However, eCommerce businesses also have to factorin merchant and processing fees from service providers like PayPal or Stripe,as well as the costs associated with shipping goods to customers. Since bothmerchant fees and shipping costs can vary so much based on which service isused to finalize the transaction and how the item is shipped, calculating yourprofits without multifaceted sales channel integration can be incrediblydifficult and time-consuming.
Inventory is one of the most important metrics for aneCommerce business. If you’re overstocked on items that aren’t selling, youmight have to spend more money just to store these products. Generally,brick-and-mortar stores have a much easier time managing inventory. Let’s say abrick-and-mortar retail business buys 100 units of a product and sells 70units. The business owner knows that they have 30 units left. Even if there wasa clerical error when tracking inventory, they can simply check their physicalinventory to confirm the numbers.
eCommerce businesses don’t always have this luxury. ManyeCommerce stores utilize dropshipping or Amazon FBA. While this can save on theprice of storing inventory, it also means that the business has less controlover product availability. Even if an eCommerce business does stock its owninventory, selling through multiple channels makes it much more difficult toknow when they are running low on any given product. This, in turn, makes itharder to know which products are selling and which ones are not.
Since eCommerce bookkeeping presents unique challenges tobusiness owners, you will need to find effective ways to keep track of yourfinances. Fortunately, there are a few different routes you can take:
Even if you use QuickBooks, accounting software, or anothersystem that helps automate some of your bookkeeping processes, you will stillhave the option to input the relevant information and maintain your booksmanually. The primary issue with this method is the dozens of nuances thatarise with eCommerce accounting, particularly when you’re selling through morethan one channel. You would need to spend hours each week wading through varieddata sets related to your inventory and cash flow, taking away from the timeyou need to run your business.
If you don’t want to spend more time managing your ownbookkeeping, you can always hire an eCommerce bookkeeper. It can be a hugerelief to have an expert managing the books on your behalf. However, even ifyou have a bookkeeper and an accountant, you will still need software like QuickBooksto provide them with the data they need to do their jobs. This means that, evenwith the extra expense of a bookkeeper and/or accountant, you’ll still have topay for accounting software, greatly increasing the cost of tracking your data.
The most efficient and affordable option is to sync all ofyour bookkeeping data via ConnectBooks. ConnectBooks syncs everythingfrom each of your selling channels to QuickBooks, allowing you to seeeverything you need with the click of a button. From accurate profit and lossstatements to real-time data tracking, ConnectBooks ensures that your eCommercebusiness can manage your bookkeeping all in one place.
Rather than spending additional money on specific solutionsfor each selling channel — like an Amazon accountant or specialized accountingsoftware for eBay businesses — you can let ConnectBooks automaticallyintegrate all of your selling channels. This slashes the time you spendbookkeeping each week from hours to minutes, without sacrificing the integrityof your data.
Are you in need ofcomprehensive eCommerce bookkeeping solutions? Do you want to learn more aboutmanaging all of your eCommerce channels in one place? If so, reach out to theexperts at ConnectBooks for more information!