When starting up your Shopify store, bookkeeping was likely not foremost on your mind. But Shopify bookkeeping best practices are essential to the success of every business.
Many business owners find the thought of keeping track of their business finances daunting. And it’s not surprising. Running a business is challenging enough, but eCommerce adds complexity. You are only making it harder on yourself if your books are a mess.
Selling your products across different states and foreign countries leaves you tackling different time zones, taxes, and currencies. Added to that are subscription fees, transaction fees, and some up-front costs involved in setting up your store.
Moreover, if you offer your customers a variety of payment methods, you will be trying to trace those deposits into your bank and the different fees each deposit incurs.
A successful eCommerce business depends on the health of its finances, and there is almost no more significant mistake a Shopify owner can make than neglecting bookkeeping.
In this article, we dive into Shopify bookkeeping best practices plus how to enhance your bookkeeping with Reconcilely. This will help enhance your bookkeeping and ensure you’re always up to date with your financial situation.
Bookkeeping involves recording all the financial transactions of your business. In other words, all sales, purchases, payments, and other daily expenses.
There are five basic accounts that transactions are recorded into for easy tracking of your finances:
Tracking the financial activities of your business allows you to keep up to date with current income and expenses and outstanding accounts due to you or due by you.
As you start getting more and more orders on your Shopify store, it becomes more difficult to track every order, payment, refund, fee, etc. Check out these nine Shopify bookkeeping best practices to help keep control of your books.
Trying to log all your online transactions manually is time-consuming, exhausting, and often results in inaccuracies.
Syncing an accounting software with your Shopify store saves time and prevents overlooking any transactions.
Then, using a tool like Reconcilely to reconcile your Shopify orders with your accounting software can help you reconcile your books effortlessly.
It is essential to make decisions based on accurate financial data in business. Your accounting software will keep track of all your Shopify transactions in a chart of accounts.
A chart of accounts is designed to separate expenditures, revenue, assets, and liabilities.
Develop a habit of viewing your financial reports and key metrics frequently. Here are the most important metrics to check.
Mistakes and oversights happen in the process of financial transactions. For example, a bank overcharge or double payment.
Your bank statement should match your records on your accounting software. Reconciling your account is the only way to spot inconsistencies or mistakes. If you have accounting software, you can automatically run the reconciliation at the end of each month. Or, if you use Reconcilely, you can reconcile orders and sales in real-time so that your accounts are always up to date.
Another benefit of reconciling your account is fraud prevention. You can pick up discrepancies quickly and prevent any fraud from snowballing.
At the end of each month, you want an overview of your cash position as a whole. Accurately recorded sales, expenses, and income are crucial for a reliable report.
Keeping track of your inventory is essential but can be difficult if you sell through multiple channels.
This is where your inventory forecast previously mentioned can help. You need to stock the right merchandise and the right amount of it.
You also need to calculate the cost of packaging and shipping and include this amount in the cost of goods sold. Remember to include packaging in your inventory to know when to reorder.
Calculating the cost of goods sold is an integral part of calculating gross profit and producing an accurate financial report.
If you have a returns policy, you need to create categories for the purpose of the return. These can include damaged goods, customer damaged goods, defective goods, or carrier damaged goods.
Seeing the reason for returns helps you track customer satisfaction. It also makes sure that you do not debit your inventory twice.
A chargeback falls under expenses or fees. A chargeback happens when a customer disputes the transaction or returns the purchase, and the credit card company asks you to return the funds.
Any expense can affect your profit or cash flow, so it is crucial to keep track of even day-to-day expenses. Anything you buy toward the operation of your business is an expense.
Fixed expenses must be included too. Examples of fixed expenses are rent, utilities, and salaries.
There are two methods of accounting. Cash basis accounting is for when money changes hands directly. It is suitable for businesses that deal directly with lots of customers.
The accrual method is better for businesses that do not get paid immediately. Accrual basis recognizes money on the issue of an invoice.
In other words, when money is earned but not yet exchanged.
The accrual method gives better financial insights and more accurate financial reporting for Shopify merchants.
We mentioned earlier that reconciling your account was a way to pick up fraud activity in your account.
However, when dealing with an eCommerce account, you also want to take additional safety measures like limiting who has access to your accounting software, payroll, and company bank accounts.
Set up a tax planning system in advance. Doing so will relieve the stress of a last-minute scramble to get your tax submitted on time. You will also be able to save money with smart tax planning.
You can set up Shopify to add tax at checkout, but you will need to remit the tax yourself and make provision for paying it.
You need to keep a close eye on what taxes you collect and where they need to be paid locally, across states, or internationally. If you sell to customers in the EU, then you also need to register for VAT in the relevant countries and set up your Shopify store to collect VAT.
The best way to make your Shopify accounting accurate and efficient is by integrating your Shopify store with a cloud accounting software like Xero.
Xero has numerous accounting features. It is a one-stop solution for all your accounting needs. Xero includes bookkeeping, invoicing, pay runs, and more.
Here is a quick summary of more reasons to simplify your accounting tasks using cloud accounting software.
Shopify is an eCommerce store that focuses on the sales of merchandise. It is not accounting software.
Small businesses may get by using the default reports generated in Shopify and by creating a couple of spreadsheets.
But manual bookkeeping will be a very challenging way to keep track of your business finances once your business grows.
As you have already seen in the detail above, accuracy and a complete picture of your business's financial health are crucial for the success of a business.
Shopify stores integrate with accounting software like Xero and using the Reconcilely app can enable real-time reconciliation so that you can keep track of all sales, refunds, fees, and more.
Several unique aspects of eCommerce bookkeeping emphasize the importance of using eCommerce software to keep your finances in order.
Of course, how much you sell is dependent on how you manage your stock, but there is potential for you to be overwhelmed.
Intimidating indeed, but there is good news. These processes can be automated using accounting software and online tools like Reconcilely.
You should have a good idea by now of Shopify bookkeeping best practices and the benefits of using a cloud accounting software like Xero.
But you can make your bookkeeping experience even better when you use Reconcilely to integrate your Shopify account with Xero. Reconcilely is a tool designed to automatically import all your transactions from Shopify into Xero.
Because Reconcilely’s features are all automated, it eliminates the need for time-consuming manual data entries. The automated reconciliation process not only saves you time but ensures that your transactions are recorded efficiently and accurately.
Connecting your Shopify to your Xero account is easy. As soon as set up, Reconciley will start importing your transactions automatically and syncing them in your Xero account.
An added benefit of using Reconcilely is that it saves you time by creating invoices in Xero in real-time for all orders and refunds.
Reconcilely will import transactions from numerous payment gateways other than Shopify. Because Shopify Payments is not available in some countries, this feature makes using different payment gateways a breeze.
Plus, some merchants use more than one payment gateway for client convenience. Reconcilely reconciles all orders through Shopify with Xero accounting software.
It also offers multi-currency support. So, merchants selling worldwide in multiple currencies can easily keep track of their transactions. And you do not have to worry about converting your earnings into home currency. Reconcilely will do that automatically for you.
Neglecting bookkeeping is one of the biggest oversights a Shopify store owner can make. If you do not know where you stand financially, you cannot make informed decisions about managing your business.
Even with slim bookkeeping knowledge, you can easily manage your business finances accurately and efficiently by linking your Shopify account to cloud-based accounting software.
You can keep a close eye on your budget and review your expenses and income anytime. Comprehensive bookkeeping software allows you to track month-to-month trends making forward planning from a financial perspective painless.
If you want to improve your cash flow and establish a solid foundation for your business finances, enhancing your bookkeeping with Reconcilely makes sense. We even offer a 14-day free trial so that you can test us out with zero risk.