All You Need to Know About eCommerce Accounting and Bookkeeping

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Written By Alan Chen

If you own an eCommerce business, you must know that keeping up with eCommerce accounting is crucial for its growth and success.

Many eCommerce business owners dedicate most of their time to stocking inventory, shipping, and order management. They forget to pay attention to other essential aspects of their business i.e. tracking expenses, eCommerce bookkeeping, and management. This is the major reason behind the failure of startups as well as big brands.

It is almost impossible to handle your finances if you do not maintain your financial records. This is why you need to outsource your eCommerce accounting and eCommerce bookkeeping service. If you want a steady and well-planned growth of your business, you need to keep your business expenses and cash flow in control.

In this article, you’ll learn about the price breakdown and the need for professional eCommerce accounting and eCommerce bookkeeping for your business.

What Is eCommerce Accounting?

What Is eCommerce Accounting?

eCommerce accounting is defined as the process of collecting, interpreting, organizing, and reporting financial data related to business transactions and assets. This financial information acts as a valuable foundation on which eCommerce entrepreneurs make various business decisions for the future.

eCommerce accounting consists of three categories i.e. eCommerce bookkeeping, reporting, and submitting tax returns. Without an accurate and solid eCommerce accounting and bookkeeping system, your business may go awry and will not scale in the future.

You need to be aware of the prerequisites that are essential for the effective growth of your eCommerce business. These are mentioned below: 

1. eCommerce Bank Account

This is necessary for precise and organized eCommerce accounting. You need to do research and choose a reliable bank whose offers are more and maintenance fees are low. It must provide a convenient and trustworthy payment processor to collect online payments.

2. Business Tax ID

To show customers that you are a reliable vendor, you need to show your business tax ID number or SSN in your business papers and tax documents. Thus, you must get an Employer Identification Number from the IRS. 

3. Accounting Software

You need a proper accounting solution to do all the tasks of eCommerce accounting. There are many accounting software available and you can choose any one as per your budget and needs. Some of them include Xero, QuickBooks, Sage, FreshBooks, etc. 

Why Hire A Professional eCommerce Bookkeeping Firm For Your Business?

Why Hire A Professional eCommerce Bookkeeping Firm For Your Business?

Many eCommerce business owners think that there is no need to hire a professional employee or agency for full-time eCommerce accounting. But this is where they go wrong.

Not having a specialist for eCommerce bookkeeping or accounting tasks can result in bad accounting. This in turn can affect the business in various ways such as appropriate decision making, tracking financial transactions, investment decisions, and growth.

No doubt we are living in an era where a person must know about different fields and must excel in different skill sets. But our years of working experience have made us realize that not everyone can handle accounting professionally. But there is nothing wrong with this and it is better to excel in one field than do wrong in multiple fields. 

For the good financial health of your business, it is important that you employ investor-grade and the latest accounting techniques. There are many ways one can go wrong and make mistakes if you are not professional. Remember investing in accounting experts is worth it and will help you make more money. 

If you want to scale your business and as it becomes more complex, you need to either hire a full-time eCommerce accountant or outsource accounting. If you are doing this from the beginning, your business will grow exponentially, and very soon it’ll be a brand. 

Where eCommerce Businesses Should Invest? 

eCommerce businesses revolve around financial transactions. There are several things where you need to invest a good amount of money if you want to get a huge ROI.

Investing in some important things upfront can help you save money and scale your business. Here are some things that eCommerce businesses need to invest in for their consistent growth and development.

Where eCommerce Businesses Should Invest? 

1. Software

eCommerce businesses of all sizes need to invest in eCommerce accounting software as it enables you to access data online at any time. There are many cloud accounting software available online but several experts prefer QuickBooks, Xero, NetSuite, etc. Such software is easy to use, fully secure, easily sync and integrate with existing software, and budget-friendly.

Along with this accounting software, you should connect with platforms such as Free Cash Flow to run and manage your business on a daily basis.

It is better to invest in these platforms as this helps you keep an eye on the growth. This way you’ll be able to make necessary changes and take appropriate actions required. It may cost you approximately $500 per month. 

2. Cleanup

Well, usually businesses contact accounting firms when they find themselves in a problem. This happens due to bad accounting and managing practices.

This is not a good thing and one must not make it a habit. It is beneficial to hire a full-time employee or outsource accounting instead of contacting one at the end of the year. 

Although any accounting firm wants to work on a cleanup project, most of the time they have to clean it themselves. This involves cleaning and getting previous bookkeeping up to meet the standards of the industry.

The cleanup process can be highly expensive rather than working with an outsourced accounting firm. The cost depends on the complexity and volume of the work. This can cost you nearly $2500 along with a one-time payment for cleanup. 

3. eCommerce Bookkeeping

eCommerce bookkeeping is essential for eCommerce businesses as it helps in keeping a detailed record of all transactions. This helps in keeping an eye on sales, expenditure, profits, stock, and purchases made. This way you can organize your sales, invoices, bank statements, sale receipts, and credit card statements.

The price of monthly accounting can depend on numerous factors, for instance, the time taken to prepare and fill entries, business size, and expertise level of the eCommerce accountant. If you are a startup or own a small business, you must go with an hourly plan as this can help you save money.

Not having a professional company for proper bookkeeping for eCommerce business, growth can turn into a nightmare. You may have to pay $1300 per month for this service.

4. Advisory or CFO

In order to improve and expand your business, you might have to invest in an advisory service or CFO (Chief Financing Officer). A CFO has the experience and expertise of helping businesses grow and excel in their relevant niche. They can help you understand the flaws and areas where improvements are required. 

If you own a startup or small business and do not have the required funds to hire a professional advisory panel for full-time, you need not worry.

You can hire a CFO on a part-time basis and get expert advice for taking your business to the next level. You may have to pay between $1000 – and $3000 per month.

5. Taxes

Until and unless you are extremely confident that you can file your taxes on your own, you need to hire a professional CPA. It is worth it to spend money on professional tax prep and filing firms as this can save you from paying penalties.

An eCommerce business consists of multiple transactions per second, this indicates that you have to cover numerous costs and fees. It is necessary to stay efficient, compliant, and in continuous operation.

Make sure you add these expenses into your model and this will make your business cash flow stable and more predictable in the long run. 

eCommerce Accounting: 5 Easy eCommerce Bookkeeping Tips

Conclusion

We have discussed the areas where you need to invest if you want to scale and expand your eCommerce business. There are some other essential aspects that you have to cover if you want to sell your products and earn money.

These things include website hosting and development, third-party eCommerce platforms for selling products, utilities, permits and licenses, shipping, returns or refunds, and maintenance of equipment and assets. You also have to spend money on storage for keeping your products safe for a long time.

In order to let people know about your business and products, you need to make them aware of it. And this is another major area where you have to spend a good amount of money i.e. marketing and advertising your brand. An eCommerce business demands a good amount of investment at the beginning. If everything is done accurately, you’ll be going to get a huge amount of profit and high revenue in the long run. 

Experts suggest that spending money on eCommerce accounting from the very beginning is beneficial otherwise you may have to pay double the amount later.

After a thorough audit, when you’ll see and realize that you lost a huge amount of money due to messy accounting. You’ll wish you would have invested in it from the beginning. But you must know that it is better to start late than never.

So, get in touch with an experienced and specialized eCommerce accountant who knows how to do bookkeeping for eCommerce businesses and interpret data accordingly. This way you’ll be able to achieve new heights and gain high ROI.

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