Adventures in eCommerce Inventory Accounting

One of the reasons that I am passionate about the subject of e-commerce accounting is that it lives in the intersection of all the things I love: accounting, apps, and inventory!

OK, before you stop reading this article, hear me out. I often hear from Bookkeepers and Accountants that they prefer not to get involved with inventory, and I understand. It can get messy, and it can be quite common to make a mistake. There are also a lot of different configurations in which you can bring sales into your accounting software, either manually or with automation. In short, it is understandably easy to feel overwhelmed.

My path to loving eCommerce and inventory accounting

My first client was an Etsy seller. They happened to be close friends of mine, and I asked them if I could connect their Etsy store to QuickBooks Online so I could understand how it worked. I also needed to figure out what to do, as I had no idea what I was doing. I had yet to learn how gross sales should be posted into QuickBooks Online. I thought I needed to bring every single piece of every Etsy transaction to the penny. Etsy listing fees, advertising fees, subscription fees, shipping fees, shipping LABEL fees, listing renewal fees, transaction fees, processing fees, credits for fees, the actual sale, tax, and the payouts.

Etsy earns an excessive amount of fees. I had yet to learn I could post a summary for the day, week, or month. I spent months and months learning how to perfect that process, trying out several different connectors, and then they opened up a Shopify store. All of a sudden, they were multichannel, and that simply means that they sell in more than one place. It became time for me to sit down and remember everything I knew about inventory management, which I did in my previous career. In my case, I had a working knowledge of inventory accounting. Because I love a good challenge, I started believing this could be my niche! I will skip over a few years of constant learning and perfecting, but I now know a few tricks I wish I had known before I started taking on Ecommerce clients.

Is the eCommerce niche right for you?

As my friend Alexis, said the other day, “you have to want it.” eCommerce bookkeeping is not simple, and there is a lot to know about the inventory workflow. It would help if you learned as much as you could. When I started to learn, there were so many platforms to understand and apps to master that I just had to choose; otherwise, I would get lost. There are resources everywhere and helpful and knowledgeable people willing to share their experiences, but you must be proactive and ask questions. I realized that because this type of accounting was more complex (sometimes a headache!), other ProAdvisors tended not to want to tackle it, and thus I saw an opportunity.

I chose to focus on Shopify because of its capabilities. I did not just want to know how to post sales from Shopify to Quickbooks. I tried to understand every moving piece of Shopify, so I became a Shopify partner and created my own Shopify store to understand what my clients were doing, from item setup and bulk editing to sales tax. There is a lot to learn if you are willing.

Every eCommerce client has unique needs

When I meet with a potential client, I ask them to spill it and tell me everything they can about their business. I do not lead with my qualifications. I listen to their pain points, what they feel they are not doing correctly, and where they need help. Inevitably, it usually involved their data sync methods.

Start by asking these questions:

• What do they sell?
• Is their business multichannel (selling on more than one platform or marketplace)?
• What merchant accounts do they use?
• What are their business goals?

If they sell something that you have zero experience with, or their plans don’t align with what you enjoy doing, it might not be a good fit.

Inventory is complex

Many people aren’t sure if they should manage inventory in QuickBooks Online (or another accounting solution) or in a connected app. The answer I usually say is…..it depends. Some clients sell goods that require assembly (and by assembly, I mean items that are made up of components). For example, I used to work at a company that bottled beer. To create one bottle of beer, you need to buy bottles, caps, hops, barley, wheat, water, and whatever cardboard and ink that is involved with the packaging. Those are assembly items that put together one sellable bottle or case of beer. Unfortunately, QuickBooks Online does not support assembly items, so you will need to use an external inventory source that syncs with it.

In other cases, if your client sells goods they purchased for resale, inventory can be managed in QuickBooks Online, The reporting and accounting methods in QuickBooks are quite limited, but for some of my clients, this is just fine. By understanding the accounting behind the movement of inventory, you can eventually determine where inventory would best be managed. Learning as much as you can about what systems work best for your clients helps you become a skilled advisor.

These are the most important things to understand before you take on that first client. Start small. Consider working with a client selling on one channel. That way, you can properly understand how to record sales and subsequent payouts. If you are anything like me, you will eventually take on more inventory clients because you will find the work challenging, and revenue potential is high. Best of luck!

-Rachel Dauchy is an advanced ProAdvisor who lives near Detroit, MI, with her husband, who works in the automotive industry, and their two children, who are 12 and 9.  She enjoys her two new adoptive cats, traveling, watching Christmas movies on Netflix, and coffee!