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25+ Helpful Accounting Tips for eCommerce Business Owners

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What You Need to Know

In this article, you will find:

  • Cash flow tips,
  • Inventory tips,
  • Cost of goods sold tips,
  • Major expenses tips,
  • Tax tips, and
  • Other miscellaneous accounting tips

One important takeaway is that you need to maximize your efficiency. One way to do this is to connect your accounting app with your e-commerce platform through a third-party integration tool like Shypyard.

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Since the advent of user-friendly ecommerce platforms like Shopify, starting an ecommerce business has become easier than ever. However, this also means that the industry has become saturated and competition has greatly increased. As a result, many merchants would rather focus on “profitable” tasks like marketing and sales, rather than “behind-the-scenes” tasks like accounting. Creating long-term success in ecommerce can’t be done without doing proper accounting along the way, though. It’s a crucial piece of building an online business that will be profitable and continue to grow for years to come.

To help you get started, check out the 12 basic ecommerce accounting concepts and the 16+ common ecommerce accounting mistakes we’ve published previously. Then, read on for our 25+ best tips for general e-commerce accounting, divided into key categories. First up: tips on accounting related to cash flow.

Cash Flow Tips

Besides regularly reviewing profit-and-loss statements—which can be skewed by changes in working capital or by accounting adjustments—merchants should also look at their cash flow reports to see where their business stands. Understanding and then optimizing where your money is coming from and going to is vital, especially during the early stages of starting an ecommerce business. Keep the following advice in mind for properly managing and tracking your cash flow:

  • Create a separate bank account for your business.
  • Record all the sales, fees, expenses, and refunds of your business to paint a more accurate picture of your cash flow.
  • Monitor your cash flow weekly so you can immediately adjust in response to any problems or discrepancies.
  • Complete regular bank reconciliations so you can detect fraud and any accounting errors that may affect your cash flow.
  • Set reminders about the timing of your cash flow on your calendar. For example, you should always know when your largest bills are about to come due. That way, you can be prepared to have the cash on hand to make the payment when required. Avoid paying bills too early so you can keep some extra cash on hand for unexpected expenses that may arise.

Remember that there are other ways to improve your cash flow besides attempting to generate more sales, including:

  • Cutting down on unnecessary expenses and/or reducing spending where possible. Even small reductions can increase in impact over time.
  • Negotiating better terms with your vendor(s), like longer payment terms, discounts, etc.
  • If applicable, offering subscriptions or long-term payment plans to customers to ensure a consistent influx of revenue.

Inventory Tips

In the ecommerce realm, most of a business’s cash is tied up in inventory. Overstocking your inventory has a negative effect on your bookkeeping and liquidity, and understocking can lead to unhappy customers and lost future sales. Consider the following tips to help you properly manage your inventory:

  • Decide on an inventory threshold, and then only reorder if your stock is near or has just dropped below that level.
  • Do seasonal budgeting to help forecast busy and slow seasons, and adjust your inventory accordingly.
  • Don’t forget to take into account the costs of packaging your product.
  • Use inventory metrics and KPIs to monitor your stock, define trends, and make better purchasing decisions. (If you’re not sure which metrics to track, check out our article on 12 inventory management metrics.)
  • Use an inventory management system to receive up-to-date data about your stock.

For more tips, check out Shypyard’s guide to inventory planning.

Cost of Goods Sold Tips

Your cost of goods sold (COGS) consists of three components: raw material costs, labor costs, and manufacturing overhead costs (such as the rent, utilities, and supervisory staff costs of your workshop). Calculating the correct COGS is crucial for creating accurate financial reports. As you do so, make sure to:

  • Use the specific identification method or a weighted average to calculate your COGS.
  • Even though it’s sometimes excluded, you might want to include the shipping fees of an item in COGS calculations. This may help paint a more accurate picture of your affairs.

Major Expenses Tips

Planning for major expenses ensures that you’ll have enough money to cover them when they arise while still covering your regular payments. Otherwise, paying for sudden, major expenses could negatively impact your cash flow. You should aim to:

  • Keep a record of your regular fees and/or maintain a weekly budget spreadsheet. That way, you can work to accommodate bigger expenses with your remaining income.
  • If you know a major expense—such as a warehouse expansion or a growth in marketing costs—is coming up soon, start planning how you’ll cover it ahead of time.
  • Do thorough research around how much something will actually cost you. Is there a cheaper alternative or the possibility of a better deal?

Tax Tips

Taxes are infamously complicated for e-commerce businesses. It’s always best to consult a tax or accounting professional if you require extra assistance. However, here are a few general tips that can help you get on the right track:

  • Work to maintain clear records throughout the year to avoid having to experience a hectic tax season.
  • Put aside approximately 30-40% of your business’s income for tax payments.
  • When starting out, expect your payable taxes to be the same as the taxes you’ve received from customers.
  • Remember to not include your taxes as part of your revenue, or there will be problems when it’s time to make your tax payments.
  • Categorize your products based on whether they require you to pay taxes. If you use an ecommerce platform like Shopify, it should be able to calculate the sales tax for you once you flag a product as taxable.
  • Keep in mind that ecommerce businesses can deduct many ordinary and necessary business expenses. Some examples include salaries, office rent, equipment costs, accounting software, and marketing costs.

Other Useful Tips

Now that we’ve covered a few key categories of accounting tips, here are a few more pieces of miscellaneous accounting advice that any e-commerce merchant can use.

Remember to account for merchant fees and fixed expenses

If you use an ecommerce platform, the merchant fees associated with it include both the monthly and per-transaction fees. If you also use payment processors such as Stripe or PayPal, the fees they charge should be included in this figure too.

Fixed expenses are costs that are not influenced by your sales. Examples of fixed expenses include rent and utilities, loan payments, salaries, insurance, and property taxes.

Find your break-even point

Your break-even point refers to how much profit you need in order to negate the costs of the products you sold. In other words, it’s how much you have to sell in order to experience no monetary profit or loss. If you find that your break-even point is high, consider either raising your prices or lowering your variable costs.

Break-even point = fixed costs/contribution margin

Hint: Contribution margin = sales price – variable costs

Track your before-tax profits

Tracking before-tax profits enables merchants to know early on if there are any issues. It also offers useful financial data on an ecommerce business’s performance.

Profits before tax = Total income – COGS – functioning costs – interest rate

Create a balance sheet

An income statement is like a snapshot of your business’s financial situation. However, to make informed decisions based on the bigger picture, you’ll also need to create a balance sheet. A balance sheet offers insights into the long-term health and performance of your online store. It’ll also help you spot any inaccuracies in your income statement. A balance sheet is comprised of three components:

  • Assets: Things of value, such as inventory or equipment
  • Liabilities: Debts or incomplete payments
  • Equity: Assets minus liabilities

Note that assets and liabilities are further defined as short-term or long-term.

Use an accounting app

Around 50% of small businesses use online accounting software to save time and reduce human errors. Accounting apps help you manage your bookkeeping in an organized way.

To maximize efficiency, integrate your accounting app with your ecommerce platform so the data can update in real time. With a third-party integration tool like Shypyard, you can synchronize all your sales, stock, product, and payout data.

Shypyard is a customizable cloud-based accounting solution for businesses of all sizes. Besides the four sync workflows mentioned above, we also offer multi-channel support. This means that, as your business scales, Shypyard helps you maintain seamless accounting across all your channels. Take advantage of Shypyard's latest Xero or MYOB sync app for Shopify merchants. If you’re using another ecommerce platform or accounting app, let us know at support@shypyard.io! We’d be happy to evaluate the feasibility of a custom software integration for you.

Simplify Your E-commerce Store’s Accounting!

Accounting plays a crucial role in the successful management of an ecommerce business. As your sales, customers, channels, and inventory grow and expand, it will only become more important. Keep the accounting tips we’ve shared here in mind—and to save time and improve efficiency, let Shypyard handle all your accounting matters, big and small. Learn more about the benefits of automating your accounting with Shypyard, then sign up for your free trial today!

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