It may be a wild guess, but I expect you didn’t launch your Shopify business because you enjoyed bookkeeping, accounting, and spending all day with your head buried in spreadsheets.
You likely started your company because you had a concept for a game-changing product or products, or perhaps you wanted to simply improve your life and the lives of your family by working for yourself.
However, regardless of why you’re running an eCommerce business, you can’t escape the fact that the basis of a successful eCommerce firm is accounting and bookkeeping.
Running an online store is already challenging enough. If your books are a mess, you are merely making life more difficult for yourself.
In this article, we’ll take a look at some best practices for accounting and booking in Shopify.
Why are accounting and bookkeeping crucial for Shopify-based e-commerce businesses?
The financial stability of your company is the cornerstone of a successful eCommerce business. You are doing yourself and your business a great disservice if you don’t have precise inventory counts, don’t know how many sales you made in a specific time frame, or your books are in complete disarray.
To manage a successful eCommerce firm, you must monitor your incoming funds and keep tight control of your cash flow.
All eCommerce business owners need a system in place to keep track of factors such as assets, liabilities, cash flow, transactions, outgoings, and equity.
The most crucial growth measures that affect your bottom line are known as Key Performance Indicators (KPIs).
Which accounting programme should you use for Shopify?
You might be able to get away using Shopify’s default reports and a few spreadsheets if your brand-new company has fewer than six figures in total sales.
However, using cloud accounting software could be much more effective for you after your sales reach six figures. You’ll save a tonne of time, plus you will find it easier to guarantee that your finances are correct and current.
Xero, Quickbooks, MYOB, and Freshbooks are just a few of the most often used solutions for eCommerce firms in the US, Australia, and New Zealand.
Which advantages of cloud accounting software are most notable?
The main advantage of using cloud accounting software is that it makes it simpler to maintain your correct financials. Making company decisions based on the most recent sales, profit, and cash flow figures is possible by syncing your software with Shopify.
Accounting procedures for Shopify enterprises
Accounting and bookkeeping require established protocols and procedures in the same way that you follow exact processes to deal with your factories, post goods to your website and other marketplaces, provide customer service, and recruit contractors and staff.
Standard procedure calls for building a strong financial foundation with repeatable systems and procedures. According to a broad definition, this may involve:
- Developing your Shopify accounting technology stack.
- Adopting best practices for eCommerce accounting.
- Putting repeatable procedures and systems in place.
- Developing your accounting technology stack.
There are thousands of third-party apps available to help you.
These programmes cover a wide range of functions, including direct integrations with eCommerce platforms (like Shopify), payment processing, expenditure management, payment processing, inventory, payroll, sales tax, and reporting.
Some of the most popular apps for Shopify-based eCommerce are as follows:
- HubDoc: automatic receipt management.
- Taxjar: provides filing, collection, and maintenance of sales tax compliance.
- A2X automates and posts your Amazon and Shopify transactions directly into your cloud-based accounting software.
- Gusto: Helps manage compliance and payroll.
Don’t overlook the importance of insurance
Managing your accounting and inventory can be very challenging. However, in the process of doing so, don’t overlook the importance of insuring your assets. Small business insurance can help you to secure the level of protection you need to cover your business and its assets. Numerous insurers provide packages that are specifically designed for owners of startups and small companies. Having the appropriate level of coverage is a smart idea because you never know what could happen in the future. Some types of small business insurance are legally mandated, while others are completely voluntary.
Adopt best practices for eCommerce accounting
Despite what your mother and best friend may say, your company isn’t a unique snowflake. Here are some best practices that all eCommerce firms ought to adhere to, regardless of which accounting platform you use.
- Always keep your books current
Your chart of accounts in your accounting software is how you may categorise and monitor each transaction. Maintaining your chart of accounts should be done at least once every week, whether you do it yourself or hire a bookkeeper. This guarantees that the decisions you make are always based on correct financial information.
- Continue using accrual accounting.
Accrual accounting typically performs better for eCommerce businesses, especially if you are expanding quickly, experiencing significant revenue spikes (for instance, over the holidays), or have a lot of complexity.
- Continue to submit inventory data properly.
You can decide when to order more inventory, what products are selling faster, how to account for inventory shrinkage, and other things by categorising and monitoring your inventory.
- Implement fraud prevention strategies.
There are several things you can do to prevent fraud, whether it is dealing with chargebacks or a rogue employee embezzling from your firm.
These precautions range from straightforward tasks like closely monitoring who has access to your accounting software, business bank accounts, payroll, etc., to more involved tasks like regularly conducting financial audits.
- Make your financial systems and procedures repeatable.
Many eCommerce business owners rely on bank balance accounting, checking it once, twice, or several times per week. If everything is in order, they resume their regular operations. When you are operating a small enterprise, this works out fine, but as soon as you grow and have a few workers, a few hundred thousand in sales, and more frequent inventory runs, this informal approach may quickly lead to cash flow issues and stress.
While you don’t have to entirely give up your tendency to keep track of your bank balance, there are three more procedures that we advise using.
- Establish a rhythm for weekly or monthly financial reporting.
It can be far too simple to become bogged down in the minutiae of your eCommerce business when you are juggling numerous jobs. It can be helpful to set up a routine where you check your financial reports and important KPIs frequently—even for just 10 minutes once a week.
The main reports that you should review are listed below:
- A P&L Statement, often known as a profit and loss statement, gives you a rapid view of all of your revenues and outgoings.
- The balance sheet, sometimes known as the “ten-foot pole perspective,” shows the entire assets and liabilities of your company.
- The cash flow forecast can help you model and plan your business’s future cash flow.
- The inventory forecast can be used to identify which products are selling the fastest, when to place another order, how to handle shrinkage, etc.
- Consistently reconcile your bank statements
As we hinted at previously in this piece, you shouldn’t ignore fraud prevention. The monthly reconciliation of your bank statements is a straightforward technique that can help you spot any wrongdoing as soon as possible. This enables you to not only notice any discrepancies in the information between your financial statements and your chart of accounts but also to address any potential fraud issues before they become major problems. By doing this, you can prevent paying too much or too little in taxes.
- Avert any nasty tax shocks.
Taxes and death are the only two certainties in life. You can prepare for taxes at least.
Since you are aware that you must pay taxes each year, setting up mechanisms in advance will spare you from the last-minute wild dash. What’s more, you will be able to benefit from tax planning to increase your ability to save money.
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