Bookkeeping for eCommerce comes with its own unique challenges. While brick-and-mortar businesses may have more than enough bookkeeping and accounting functionality with QuickBooks, eCommerce businesses often need to supplement QuickBooks with third-party add-ons and programs. This is especially true for eCommerce businesses that sell across multiple platforms like Amazon, eBay, and Shopify. Failing to recognize the inherent differences in eCommerce bookkeeping can even result in inaccurate profit and expense reports.
So, what are the biggest differences between eCommerce bookkeeping and standard bookkeeping? What are some eCommerce bookkeeping services to consider for your business? How can you manage bookkeeping for Amazon or eBay sellers? Finally, what is the best bookkeeping software for eCommerce in general?
In this guide, we will answer all of these questions and more, but first, it’s important to understand exactly what eCommerce bookkeeping is and how it works:
Standard bookkeeping simply means keeping track of the incoming and outgoing flow of money for your business. This same definition applies to eCommerce bookkeeping, though the best ways of bookkeeping for a brick-and-mortar store can differ drastically for an eCommerce business. That said, like most traditional bookkeepers, an eCommerce bookkeeper must also categorize different types of income and expenses, track returned purchases, and review balance sheets.
At its core, bookkeeping tracks many of the same financial transactions and records, regardless of the type of business. However, when you look at the day-to-day operations of an eCommerce business compared to a traditional, brick-and-mortar business, the differences become much clearer. Consequently, the processes needed for accurate and up-to-date bookkeeping vary. Here are a few of the most important ways that bookkeeping for eCommerce differs from traditional bookkeeping:
Foreign transaction fees present an entirely different kind of issue for eCommerce. These fees can apply to both buyers and sellers. Traditional businesses generally see foreign transaction fees that are charged directly to their bank accounts, with the fees designated by the payment processor.
eCommerce businesses that make sales overseas have to deal with varying kinds of foreign transaction fees, but they’re not always as simple to track. Managing these fees can be difficult, especially when they are recorded differently by each eCommerce platform or payment system. This is made even harder with sales channels like Amazon, which often roll the cost of location-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, if the business account receives a deposit of $1,000, the business owner can record income of the same amount. The vast majority of deposits are the result of direct sales made by the business. Unfortunately, calculating both income and profits is a bit more convoluted for eCommerce businesses.
When a business receives a deposit from a sales channel like Shopify or Amazon, the amount received does not reflect income. This is because these platforms lump together more than one type of transaction to minimize transfer 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 and chargebacks, $150 in merchant fees, and $200 in shipping fees paid out by customers. Thus, attempting to do any kind of clean Shopify bookkeeping (or any other sales channel) from bank deposits alone is virtually impossible as an eCommerce business.
This doesn’t even account for the complexities of calculating eCommerce gross profits. A standard retail business simply needs to subtract the cost of goods sold from the total revenue. The resulting figure is the gross margin (i.e. profits). However, eCommerce businesses also have to factor in merchant and processing fees from service providers like PayPal or Stripe, as well as the costs associated with shipping goods to customers. Since both merchant fees and shipping costs can vary so much based on which service is used to finalize the transaction and how the item is shipped, calculating your profits without multifaceted sales channel integration can be incredibly difficult and time-consuming.
Inventory is one of the most important metrics for an eCommerce business. If you’re overstocked on items that aren’t selling, you might 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 a brick-and-mortar retail business buys 100 units of a product and sells 70 units. The business owner knows that they have 30 units left. Even if there was a clerical error when tracking inventory, they can simply check their physical inventory to confirm the numbers.
eCommerce businesses don’t always have this luxury. Many eCommerce stores utilize dropshipping or Amazon FBA. While this can save on the price of storing inventory, it also means that the business has less control over product availability. Even if an eCommerce business does stock its own inventory, selling through multiple channels makes it much more difficult to know when they are running low on any given product. This, in turn, makes it harder to know which products are selling and which ones are not.
Since eCommerce bookkeeping presents unique challenges to business owners, you will need to find effective ways to keep track of your finances. Fortunately, there are a few different routes you can take:
Even if you use QuickBooks, accounting software, or another system that helps automate some of your bookkeeping processes, you will still have the option to input the relevant information and maintain your books manually. The primary issue with this method is the dozens of nuances that arise with eCommerce accounting, particularly when you’re selling through more than one channel. You would need to spend hours each week wading through varied data sets related to your inventory and cash flow, taking away from the time you need to run your business.
If you don’t want to spend more time managing your own bookkeeping, you can always hire an eCommerce bookkeeper. It can be a huge relief to have an expert managing the books on your behalf. However, even if you have a bookkeeper and an accountant, you will still need software like QuickBooks to provide them with the data they need to do their jobs. This means that, even with the extra expense of a bookkeeper and/or accountant, you’ll still have to pay for accounting software, greatly increasing the cost of tracking your data.
The most efficient and affordable option is to sync all of your bookkeeping data via ConnectBooks. ConnectBooks syncs everything from each of your selling channels to QuickBooks, allowing you to see everything you need with the click of a button. From accurate profit and loss statements to real-time data tracking, ConnectBooks ensures that your eCommerce business can manage your bookkeeping all in one place.
Rather than spending additional money on specific solutions for each selling channel — like an Amazon accountant or specialized accounting software for eBay businesses — you can let ConnectBooks automatically integrate all of your selling channels. This slashes the time you spend bookkeeping each week from hours to minutes, without sacrificing the integrity of your data.
Are you in need of comprehensive eCommerce bookkeeping solutions? Do you want to learn more about managing all of your eCommerce channels in one place? If so, reach out to the experts at ConnectBooks for more information!