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As a small business Shopify seller, keeping your books in order is very important. In order to run your business smoothly, you must have knowledge and insight into your cash flow, inventory, and operations. Let’s start with the basics. For any eCommerce or standard retail solution, you must keep track of your assets, liabilities, revenue, expenses, and equity.
Revenue – the cash you receive from sales, affiliates, etc.
Expenses – your outflow of cash. In a business, this also includes expenses like inventory, packaging, team expenses.
Assets – what your business owns
Liabilities – Any existing debts or loans
Equity – what percentage of the business is yours?
If you’re going to do business, you must have a business bank account that accounts for your revenue and expenses. You may also want a credit card for the business that will help you establish credit. The first step is recognizing accounting and bookkeeping because they are not the same.
Bookkeeping usually entails recording and organizing your finances. Reconciling the accounts, maintaining the balance sheets, and putting your transactions where they belong. Accounting, on the other hand, is an overview of the financial statements This deals more with auditing, forecasting, and other areas like tax planning.
In order to have accurate numbers for your business, using accounting software for desktop or cloud-based is key. This software saves time, reducing the likelihood of calculation errors. It’s always best to use accounting software that directly integrates with Shopify to make things easier. When evaluating the software, you want to make sure it has direct integration with Shopify and syncs to your business financial accounts.
While every business should have its accounting recording and processing tasks in place, eCommerce is a little different. With an eCommerce Shopify store, there are elements that may not be realized until the business starts, like taxes, fulfillment, different time zones, and currencies. Depending on the payment gateway, there are fees associated with this.
As a business owner, you must realize that Shopify stores are practically limitless (well, almost). That means if you’re attempting to do this manually, it can quickly become overwhelming. Additionally, if you don’t have a handle on your inventory and aren’t tracking it through the Shopify interface, you could start losing money. In fact, what you ready on the Shopify report may not be entirely accurate. This is where your bank statements could be your friend, especially if there are many transactions.
Consider the tax implications – when you use an accounting software coupled with a tax app on Shopify, you will know the amount of taxes and pay them on time. While nothing replaces an accountant or bookkeeper, you will know where you stand.
Why use cloud-based accounting software
Utilizing the cloud to handle your bookkeeping for Shopify tasks makes sense, especially in an environment where security is consistently compromised. Having the ability to set different levels of accessibility when sharing files can make a huge difference in keeping track of what needs to be recorded and recognized.
Why would you want to use the cloud?
First, you stay on top of your books. With software, whenever something is entered or recorded, the software does the rest. Additionally, financials are safe and secure utilizing encryption programs.
You are able to see an instantaneous visual of what gets deposited in the bank and your current cash flow. With the click of a button, you’re able to see the difference between any previous month’s financials and what’s currently going on within your store.
Being able to have access to your financials in real-time by accessing the internet can come in handy when you least expect it. The cloud-based software can also use apps and integrations to enhance the software and adapt it to your individual business needs
Types of bookkeeping for Shopify software to consider
Now that you know you need accounting software to successfully manage your books, which software works best and integrates with Shopify? Good accounting software tracks income, expenses, deals with incoming and outgoing payments, and much more.
As a small business owner, the software must be adaptable and scalable while meeting your basic needs. One of the best things you can do is utilize software that can be accessed and used in the cloud. This helps a bookkeeper or accounting person access files and work on your books from anywhere. Most importantly, the software should be able to seamlessly integrate with Shopify either directly or with an outside connection like Zapier. Here are a few to consider:
• QuickBooks Online
One of the most popular options on the market, this accounting software is ready to handle the books for any Shopify store regardless of size. Robust features like invoicing, costs of goods sold, cash flow, and other tasks make it a very attractive option. Additional features include a number of payment integrations to further enhance your Shopify store, the ability to operate via mobile app, and real-time reporting. There are four plans to choose from.
When working with international customers, FreshBooks really shines. Supporting over 170 currencies, this is a good alternative to other software, FreshBooks also has a mobile app. While there are some features that require a higher plan than the starter, this is still a widely recommended accounting software solution.
Xero is another popular accounting software that supports Shopify stores. With over 800 integrations, Xero can comfortably handle any size business. Known to be user-friendly, Xero can be accessed from its mobile app. One of the highlights of this software is the unlimited number of users on every plan. Some features will have to be upgraded for additional unlimited features, but the software remains affordable.
An enterprise resource system (ERP), this software adds a higher level of authenticity to any Shopify store. This software does more than just handle bookkeeping tasks – it also has custom accounting tools, with domestic and global tax compliance. With inventory management, order, billing, and more, NetSuite is a strong choice for bookkeeping for Shopify choices.
Wave is a free accounting software that can be connected to a Shopify store. Although free, it has all the features needed to maintain the books for your store. There is no mobile app available and it does not have all the customizations and other areas for a business that may be likely to scale.
How to keep records for your small business
Consider the eCommerce best practices for keeping your finances under control:
You must have organization to correctly keep track of all your transactions. Keeping the Chart of Accounts completed on a recurring basis helps know where the business is financially. This should be updated on a weekly or monthly basis.
• Accrual accounting
As an eCommerce business, using the accrual accounting method works in your favor. This comes in handy if you have an uptick in sales or find yourself having to scale very quickly.
• Reporting inventory
How will you know what you need if you don’t keep track of your inventory? How will you know the information you need to make an educated and informed decision? The worst thing you can do is order too much or not enough of something because you don’t have a handle on what’s already in your warehouse.
• Fraud prevention
Fraud occurs in eCommerce every day. Customers receive merchandise and state they don’t like it or have issues with the color. Your accounting system will be able to work with your Shopify account to accurately account for chargebacks and other inconsistencies. This will also make sure your paperwork is in order if you are audited.
Challenges to Anticipate
There are a few challenges many small businesses face when bookkeeping. Here are the most common:
• Recognizing revenue
When you receive cash at a different time from when the sale took place, it can be difficult to recognize the revenue when reconciling the books. Pulling in sales data or using the Shopify Sales Report can help you figure out how to track this monthly.
• Recording the transactions
Recording and reconciling revenues on your transactions are very important. It is easy to overlook a transaction that occurred by credit card if it isn’t posted at the same time. Additionally, there may be fees associated with that transaction that changes the amount of what is received. If you’re dealing with foreign transactions, the rates and calculations may be different.
• Expense tracking
Keeping track of the expenses occurring on a daily basis can be confusing. Using applications that help track them in real-time will provide a more accurate picture of what’s happening.
Tracking inventory can be hectic when you have a lot of variants to deal with. Using an inventory software along with Shopify’s tracking feature can help save time and money.
Reliable processes to consider
Things can quickly get out of hand in a Shopify store if there aren’t adequate systems and processes in place. When you don’t have enough people in place to make sure all areas of the business are covered, one of the first places it becomes noticeable is in the financials. Again, the bookkeeping component of your Shopify store cannot be avoided or ignored.
Here are a few suggestions to ensure your bookkeeping stays in order:
• Create a recurring system that works
Taking the time to review your financial statements on a weekly basis can help pinpoint issues before they become bigger problems. Even if you don’t have an accountant, you should be able to understand and read your Profit and Loss Statement, Balance Sheet, Cash Flow, and Inventory Forecasts. This will help you see what’s coming in, going out, your assets and liabilities, what you may need in the future, and which products are selling the most, etc.
• Check your bank statements on a regular basis
Reconcile your bank statements every month to see if there are any fluctuations in what you have on your Profit and Loss Statement or Balance Sheet. Reconciling your bank statements will alert you to any fraud or inconsistent transactions from your credit cards, bank accounts, and Chart of Accounts.
Without a doubt, you will have to pay taxes for your Shopify store. The best thing you can do is to plan ahead and be prepared when you have to pay. Your software should be keeping track of your tax liability and providing a snapshot of the amount you will have to pay based on sales.
Consider how you will choose the right apps and software that works well for your business based on the research you have done. Being proactive can help you understand more as you go. From tax compliance to fulfillment, all of these apps integrate with Shopify to help your bookkeeping experience remain top-notch.
When choosing the software that follows the industry standard, keep in mind all the areas of functionality you need to keep things going.
Disclaimer: Please keep in mind that the content of this post is not intended as tax, accounting or legal advice. The information presented here is for informational and educational purposes only. Before engaging in any transaction, be sure to discuss these matters with a trained, licensed professional.