Ecommerce accounting is the collecting, analyzing, organizing, and reporting of financial data related to business transactions that occur online, i.e., ecommerce or electronic commerce. Businesses are leaning into online stores, and they are selling a broad spectrum of products, services and subscriptions to their target audiences. Trends show that both consumers and businesses are increasingly purchasing online; therefore, ecommerce accounting is now mandatory for online sellers.
“I don’t do ecommerce accounting.” I hear that a lot more than you’d think. Accountants and bookkeepers say it as if it’s the last thing in the world they want to partake in. It sounds scary, complicated, and intimidating, but that’s what businesses today are requiring. It could become a cash cow for you, and with the right processes and tools, it doesn’t have to be so intimidating.
Here are a few tips to get you started in the world of ecommerce accounting.
Connect with ecommerce accountants
The accounting industry is so community-based, and within that larger community, there are niches and groups based around commonalities. So, if you are considering taking on ecommerce clients, connect with other accountants or bookkeepers in that niche. Look at who’s talking about it, tweeting about it, creating videos, etc. Join community-based groups like Ecomm as you are Roundtable, a free, app-agnostic twice-monthly discussion group and online forum. Look for ecommerce Facebook groups, like Virtual Bookkeepers United Community by Donna Reade, or YouTube channels like ‘5 Minute Bookkeeping’ by Veronica Wasek. When you go to conferences, make sure you meet your online connections and attend any ecommerce sessions to become more familiar with it.
Understand the ecommerce business
You need to have a general understanding of the business and what the income and cost of goods sold are. What is being sold and what expenses are there against sales? Are there gift cards, discounts, or other nuances that need to be accounted for? How often are goods sold? Is it a brick-and-mortar store with several locations open every day plus an online presence with multiple payment methods? Is it a once-a-month meeting with a spike in transactions happening just one or two days during the month? Knowing this information can help you set up the proper workflow and can influence the tools you use. Plus, the complexity of the business can influence the price you charge for your services.
Understand the platform(s)
Okay, next, you need to clearly understand from the business owner where exactly they are selling, and how they are taking payments. There are plenty of ways to mix online stores, point of sales, and payment processors. It could be a restaurant chain that exclusively uses Square, it could be a small business that sells on Etsy and their own website using WooCommerce for their store – either way, these sales need to be captured and consolidated while also giving the amount of detail necessary, to provide a clear understanding of the business and future projecting. Some online stores have their own “financial period” they go by, like Amazon Seller, which generally pays out every two weeks. Some of these online services like Amazon and Shopify handle by now pay later differently, and some will hold balances and make deductions against balances instead of depositing them into a bank account.
It’s hard for anyone to keep up with all the different ecommerce platform workflows. Imagine pulling each separate report, analyzing that data, and manually entering it into the preferred accounting system. Talk about hours of manual work, and each one works differently. According to our recent research report, three-quarters of businesses report that ecommerce platforms have created additional manual bookkeeping work, with firms estimating that these extra processing steps cost them 5-7 staff days per month.
Implement accrual accounting
The “accrual method” is a way of booking information that prioritizes the connection of sales to the day the sale happened rather than the day you received the money for said sale. Expenses as well, the day they were assessed, not the day they were deducted. This means that you have a clearer picture of financial performance on any given day.
The deposit schedule of a sales platform should not dictate your reporting or data. At Bookkeep, we book data in a way that keeps it attached to the time of the year, even the day of the week. That way, you can understand what motivated customers to buy, and you can clearly see what’s working for the business.
Bookkeep records data in the general ledger:
Sales data is booked as a summary for the day, each day, automatically
A separate daily summary for each sales platform connected to your general ledger through Bookkeep. This keeps the books clean.
All entries are dated according to the sales date being summarized
Accrual accounting is flexible, consistent, transparent, and valuable. Clear bookkeeping should contribute to efficient workflows and make your business more lucrative.
There are so many ecommerce platforms today, and they are regularly adding features and evolving. So automation is the best way to keep up with all the different workflows, especially with multiple physical and online “stores” that are using multiple platforms that are applying different rules.
Modern businesses need information faster to make rapid business decisions. Automation is critical to getting better information faster. Automation is accelerating accrual-based bookkeeping, supporting more efficient workflows, and making businesses more aware of their financial health every day. Selecting an accounting automation platform that integrates with your GL program and all of your sales channels means less time spent on manual data entry (and fewer mistakes!) so that the accountants and business owners have more time to focus on increasing profits and building their business. Bookkeep is built on best practices for ecommerce bookkeeping, and it supports the entire revenue accounting process, from accrual-based books, cost-effective automated workflows, and daily sales entries and reconciliation.
Ecommerce accounting is increasingly likely to be a part of your own business since it is a growing part of your client’s businesses. Maybe you “don’t do” ecommerce accounting right now, but you may want to start to lean in. Take advantage of online communities and learn about the platforms, possible ecommerce business clients, and the best practices for ecommerce accounting.
Check out our ecommerce best practices eBook to learn more about taking on ecommerce clients.