Bookkeeping guide for ecommerce: what you need to know

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 finance or investment. Here is your guide to bookkeeping for eCommerce organisations, from how to get started to who to ask for help.

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

In Australia, you must register for goods and services tax (GST) once your GST turnover reaches $75,000 or more (counting this month and the previous 11 months, or this month and the next 11 months). You must register within 21 days of reaching the threshold. In New Zealand, registration is required when taxable-activity turnover is at least NZ$60,000 in the previous 12 months or is expected to reach that amount in the next 12 months. Registration is also required if you add GST to taxable-activity prices. Because the Australian test also looks at projected turnover, it’s often wise to register well in advance if you think you’ll pass the $75,000 threshold. Registering for GST means you include GST in your prices on taxable sales, and it also lets you claim GST credits for the GST included in your business purchases from GST-registered suppliers.

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 funnelled directly into your organisation’s account for easier bank statement reconciliation. To open a company bank account in Australia, you will generally need your company’s registration details, 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 accounting software and a process that can scale with you. Check whether a plan limits the number of transactions, invoices or users, because those limits can become barriers later on.

Why eCommerce bookkeeping is important

For very small businesses, basic bookkeeping might work for the short term. But 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 use an outsourced bookkeeping service, here are some of the things your eCommerce bookkeeping will need to handle.

• Managing your eCommerce accounting software. A good bookkeeper will manage your accounting software, such as Xero or MYOB. Well-kept accounting software can generate essential reports at any time and help you identify trends in your eCommerce sales.
• Recording merchant fees. When a customer pays by card on your website, you will usually incur a merchant fee, often calculated as a percentage of the sale. By accurately tracking merchant fees, you can see what each sales channel really costs and adjust pricing as necessary.
• Handling third-party payment tools. Payment gateways and wallets such as PayPal, Stripe, eWay or SecurePay each charge their own fees and pay out on their own schedules. Each payout needs to be matched to the underlying sales, with the fees recorded separately.
• Tracking sales from multiple sources. Even without cash sales, you’ll 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.
• Recording foreign currency sales. eCommerce customers paying in foreign currency can also pose some unique challenges. If you plan to sell internationally, you’ll need accounting software that records the exchange rate on each transaction and any conversion fees. Goods you ship to customers overseas are generally GST-free; code those sales correctly so you do not pay GST you do not owe. You’ll also need to document the exchange 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. Good bookkeeping tracks 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 costs.
• Tracking eCommerce inventory. Your eCommerce bookkeeping system is also crucial when it comes to tracking inventory: what you hold, what it cost and what has been sold.
• Figuring out your cost of goods sold (COGS). COGS is the direct cost of the products you sell, such as the purchase or production cost, inbound freight and packaging. Other costs, such as advertising and website fees, are operating expenses rather than COGS, but they still eat into your margin. Bookkeeping gives you a better picture of what each sale actually costs you.
• Preparing for lenders and 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 relying on catch-up bookkeeping. And you want to lodge 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 changes hands. Accrual accounting records a transaction when the sale or service happens, even if it hasn’t been paid for yet.
• Choosing the right basis for GST. Aggregated turnover below $10 million is one route to cash-basis GST eligibility. Other routes include cash-basis income-tax accounting, eligible non-business enterprises, specified charities, schools and gift-deductible entities, or ATO permission. Check the ATO’s eligibility rules; GST and management-accounting methods are separate choices. Many growing eCommerce businesses still keep accrual management accounts, because they show inventory and unpaid bills more clearly.
• Using double-entry bookkeeping. Single-entry bookkeeping only records each transaction once. With double-entry bookkeeping, every transaction affects at least two accounts, so the books balance and you’ll catch more mistakes. Modern accounting software works this way.
• 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. A bookkeeping service with eCommerce experience can take that load off you.

What do you look for in a bookkeeper? Here is 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, and your reports and lodgments 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, such as how to improve cash flow or reduce debt.

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 mention additional shipping charges. The right bookkeeper for your growing organisation will be able to tackle all of these issues.

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.

Visory runs bookkeeping, payroll, accounts payable and accounts receivable for growing businesses. Your dedicated team does the work, with help from Delphi, Visory’s AI, which the team oversees. Visory Insights and your Business Performance Partner then turn the numbers into decisions. Book a discovery call to see how it would work for your store.