Bookkeeping for an eCommerce business has unique challenges. Between tax implications, shipping processes, and website overheads — you need to know your stuff. Frankly, as your organisation grows, it gets harder to do it yourself.
The best practices for eCommerce bookkeeping will help protect you come tax time, but they also prepare you for seeking investments and more. Here is your guide to bookkeeping for eCommerce organisations. Everything from how to get started to who to ask for help — all in one place!
What you need to start doing bookkeeping for your eCommerce business
If you’re brand new to selling online, there are a few milestones to meet before your organisation can start selling. And we’re not just talking about getting a point of sale system on your website. In order to effectively track your sales, collect the right taxes, and have accurate books, you should also complete these three tasks.
Get set up for GST
If you think you’ll turn over $75,000 or more annually in Australia or $60,000 or more in New Zealand, you need to be set up to pay goods and services tax (GST). In Australia, it is important that you register for GST within 21 days of passing the threshold. For this reason, it’s often wise to register well in advance if you think it is likely you’ll eventually pass the $75,000 threshold. Not only does registering for GST allow you to add tax to your sales, but it also permits you to claim back GST from the Australian purchases you make from GST-registered businesses.
Create a business bank account
eCommerce business owners should never mix business and personal funds — it’s just too messy. Create a business bank account as soon as you set up an eCommerce store. Your sales should be funneled directly into your organisation’s account for easier bank statement reconciliation. To open a company bank account in Australia, you will need a certificate of registration of a company, an Australian business number, and proof of identity documentation.
Choose an accounting system
Once you have your tax registration in place and you have a bank account set up, you want to get your eCommerce bookkeeping up and running the right way. The right bookkeeping software allows you to maintain accurate balance sheets, financial statements, payroll reports, and more. You want an accounting software and strategy that can scale with you. Be careful of accounting software that has limits on the number of transactions and customers you can track. This will provide barriers later on.
Why eCommerce bookkeeping is important
For very small cash businesses, basic bookkeeping might work for the short term. But trust us – tracking expenses and revenue in a spreadsheet is not a good idea for a growing business. eCommerce bookkeeping helps you track many vital processes.
Whether you hire staff for the back office or enlist virtual bookkeepers, here are some of the things your eCommerce accounting and bookkeeping services will handle.
- Managing your eCommerce accounting software. A good bookkeeper will manage your accounting software, such as Xero or MYOB. Robust accounting software can generate essential reports around the clock and help you identify trends in your eCommerce sales.
- Paying merchant fees. When a customer uses a credit card to make a purchase on your website, you will incur a merchant fee. This is calculated as a percentage of the sale. By accurately tracking merchant fees in your eCommerce bookkeeping strategy, you can figure out how to adjust pricing as necessary to recoup these fees.
- Handling third-party payment tools. To avoid the highest merchant fees, you may want to begin accepting other forms of payment. Adding PayPal, Stripe, eWay, or SecurePay to your website can sometimes lower your fees on domestic charges.
- Tracking sales from multiple sources. Obviously you won’t be accepting hard cash over the internet. But you’ll still receive payments from more than one source. Visa, Mastercard, third-party payment tools, gift cards, and other payment sources need to be sorted. Your bookkeeping should be able to track and analyse where your payments are coming from and the implications for cash flow.
- Configuring foreign sales conversion rates. eCommerce customers paying in foreign currency can also pose some unique challenges. If you plan to sell internationally, you’ll need an accounting software and/or bookkeeping system that can track conversion rates and help you advertise prices accordingly. You’ll also need to document the conversion rates on foreign purchases your company makes so your bank statement can be reconciled properly.
- Collecting and recording shipping fees. eCommerce sales usually involve some sort of shipping. A streamlined bookkeeping service will track your shipping costs. Comparing costs to what you charge for shipping lets you know when and if you need to increase shipping charges to cover your overhead.
- Tracking eCommerce inventory. Your eCommerce bookkeeping system is also crucial when it comes to tracking inventory.
- Figuring out your cost of goods sold (COGS). The total COGS for your business may be higher than you originally anticipated. Between packaging, advertising, shipping, and other overheads — it costs you more than just materials and labour to move units. Bookkeeping gives you a better picture of what your expenses actually are.
- Preparing for investors. If you ever need a business loan or want to take on investors for your eCommerce business, you’ll need accurate books. Anyone considering giving your business cash will want a precise picture of where your finances stand.
eCommerce bookkeeping best practices
Maintaining e-business books as a business owner is easier if you follow some basic principles. Of course, you want to stay current and avoid using catch-up bookkeeping as your go-to accounting method. And you want to lodge your taxes on time to avoid penalties. There are a few other things to keep in mind.
Best practices for eCommerce bookkeeping include:
- Learning the difference between cash vs. accrual accounting. Cash accounting only counts transactions when cash trades hands. Accrual accounting notes a transaction when the service is provided — even if it hasn’t been paid for or received yet.
- The cash method works for small businesses, but if you turn over tens of thousands of dollars per year, the accrual method is more appropriate.
- Using double-entry bookkeeping. Single-entry bookkeeping only tracks transactions once. With double-entry accounting you’ll catch more mistakes and create stronger efficiencies.
- Cloud-based accounting. When you’re doing your business online, it makes sense to keep your bookkeeping online, too. Cloud-based accounting keeps records on hand at any time.
What to look for in an eCommerce bookkeeping service
Let’s be honest, bookkeeping mistakes can put a handbrake on your entire enterprise. And handling your own books can be too much to handle. Leveraging a bookkeeping service with expertise helps to save the day.
What do you look for in a bookkeeper? Let’s talk about what they must be able to handle if they’re going to help you thrive.
A good bookkeeping service can handle multi-channel revenue. Can your current bookkeeper manage the sales from Shopify, Amazon, Etsy, and your own website? You don’t want a service that has limited understanding of the latest sales channels. Can your bookkeeper scale with you? As your organisation grows, it will have more complex financial needs. Your reports and tax lodgements should reflect that.
Can your bookkeeper provide you with clear, actionable reports? You don’t need a list of transactions with no insights — you also need to know what to do next. A good bookkeeper will forecast the best path toward increased cash flow and debt reduction.
Speaking of cash flow, can your bookkeeper monitor your cash flow and spot red flags? Can they point out areas of improvement, such as where you can cut back on overheads or reduce materials costs? Improved cash flow gives you more room for expansion and can help you add staff to your growing business.
Can your bookkeeper handle foreign currency? There are unique conversions and fees associated with international transactions. Not to speak of additional shipping charges. The right bookkeeper for your growing organisation will be able to tackle all of these issues — and anything else that arises.
The final word on eCommerce bookkeeping
eCommerce accounting and bookkeeping don’t need to keep you up at night. You’ll sleep easier with help from an experienced team who know how to manage multiple payment streams and foreign transactions.
At Visory, we pair you with bookkeepers who know your industry and can scale with you. You are able to add new members to your bookkeeping team, or scale back down, as needed. Why add a back office staff member when a virtual team can handle your needs without taking up office space?