People who start an eCommerce business don’t expect to spend their days combing through transaction data and ensuring their books are balanced. However, the back-end management of your business’s finances can be just as important to your long-term success as your front-end interactions with customers.
In other words, bookkeeping for eCommerce businesses is a crucial part of running your online storefront. It helps you manage your cash flows, gain visibility into your financial health, and ensure accurate reporting.
Below, we’ll discuss what bookkeeping for eCommerce companies looks like, the unique considerations companies in this industry have, and why it might be a good idea to outsource this task to an experienced professional.
Bookkeeping for eCommerce companies is similar to that of most other industries. It includes accurately tracking income and expenses for the eCommerce company, preparing financial statements, and using this data to make informed decisions.
Why is it so important? As an eCommerce store owner, proper bookkeeping ensures you get a complete picture of your financial positioning. It’s not enough to look at the sales figures coming in through your eCommerce platform–this only tells half of the story.
While it can be encouraging to watch revenues climb as you attract new customers, you need to be aware of the outgoing cash as well, like any advertising expenses, employee wages, and software subscriptions. Bookkeeping tasks help you monitor each of your accounts in more detail, getting a better understanding of all the cash flowing in and out of your business.
The following are some of the most common bookkeeping tasks for eCommerce businesses:
The main bookkeeping principles remain the same across all industries. However, the eCommerce space has unique characteristics and needs that require a slightly different approach.
Here are some of the bookkeeping matters that need to be uniquely handled for eCommerce companies:
One of the complexities that eCommerce businesses face with bookkeeping is calculating and collecting the appropriate sales tax. Rather than a brick and mortar retailer that sells to customers in one location, online sellers may have customers across the country or the world, making it more difficult to track sales tax accurately for all jurisdictions.
Compared to companies in the SaaS or professional services industry, eCommerce companies need to manage and value inventory properly for accurate financial reporting and to ensure adequate stock to fulfill customer orders.
How a company manages and values its inventory has important implications for its income statement and balance sheet, so this often requires diligent management to monitor inventory levels in real-time.
The company needs to carefully select and strictly adhere to their chosen inventory valuation method–be it LIFO, FIFO, or average cost.
One of the challenges that eCommerce companies can face is the large volume of sales transactions, which may come across various online channels and platforms. This can make it harder to accurately monitor all incoming revenue data.
For instance, companies may have their products listed on their own website, on Amazon, eBay, and other platforms. Business owners need to have a system to manage and record sales from each of these channels effectively.
Moreso than in other industries, eCommerce stores handle higher rates of returns and refunds. This adds a it more complexity when managing the books, as they need to make the appropriate inventory and journal entry adjustments.
Even compared to physical storefronts, online retailers often have greater returns because eCommerce customers can’t test out the products before purchasing them. So, this is a distinct challenge for eCommerce businesses, rqeuiring diligent tracking of all refunds and returns the company processes.
Despite the unique challenges of eCommerce bookkeeping, businesses in this industry can still maintain accurate and up-to-date financial records by implementing the following tips and best practices:
Business owners of eCommerce stores have enough on their plates. They need to engage in strategic sourcing to find the right products for their storefront, leverage proper sales and marketing campaigns to attract customers, build their website, and manage the platform to ensure it’s operating smoothly.
At the same time, maintaining accurate and up-to-date financial records is another vital task that cannot be overlooked. eCommerce stores may not be ready to hire an in-house bookkeeper to manage these tasks full-time. However, they might not have the time or expertise to manage these tasks on their own.
For many eCommerce companies, outsourcing their bookkeeping tasks to a third party provider makes the most sense. Outsourced bookkeepers are experienced financial professionals who understand the nuances of the industry, helping online store owners keep their financial records up to date, meet compliance requirements, and offer guidance on financial decision making.
Bookkeeping for eCommerce companies requires a strict attention to detail and a thorough understanding of sales tax regulations. While online sellers may be able to manage their books on their own for a while, as their store grows and they experience higher transaction volumes, it makes more sense to outsource these tasks to an expert.
When working with a team like Bob’s Bookkeepers, you’re partnering with professionals who have hands-on experience in the eCommerce industry. We know the unique challenges that eCommerce stores face, and can offer our expert knowledge to help you thrive in the modern marketplace.
Contact us today to speak with one of our expert providers.
