Ecommerce Accounting: How to Set Up Simple Systems and Processes

Ecommerce businesses operate everywhere all at once, creating some unique challenges for products and customers, especially when it comes to accounting and keeping the books. The business may be simpler to run from a sales perspective, but you’re under greater scrutiny and face more regulations and tax burdens than many traditional brick-and-mortar operations.

Understanding accounting needs, tax requirements, and potential threats to revenue is essential, whether you’re starting out or just realized you needed to be filing paperwork in more states. If you’re selling something online or managing the books for companies that do, it’s time to brush up on Ecommerce Accounting 101. Here are five places to start.

1. Review Your Data and Software

The first step starting your ecommerce accounting is reviewing the existing tools you’ve implemented for your ecommerce store at this point. You’ve likely got a website and an ecommerce platform, but you might also have customer relationship management (CRM) or inventory/order management tools, too. 

Run through your software and see what has the data you need and where it is already shared. So, if your order management tools update your ecommerce platform for when orders are complete and give it inventory counts, then you can access the accounting information you need all within the ecommerce platform.

Collect your order information, sales, overhead, company credit cards, bank accounts, and other relevant data. See where you have to go to access this information and write out a master list. It’s also helpful to note what’s on auto-pay, such as any utility costs or software. If you’re large enough to have a payroll, get this together too.

If you’re managing the books for someone else, ask about the software they use and where their information comes from for sales and spending. Knowing that Amazon FBA will collect sales taxes and generate some reports can avoid surprises and extra work for you.

2. Select Your Accounting Tools

Now, your ecommerce accounting goal is to find the right tool that connects as much of this as possible. Cloud-based platforms can often integrate with your ecommerce and financial services. Create a shortlist of accounting options based on your most limiting software — likely either the CRM or ecommerce platform — and start reading reviews.

You not only want to see the data that the accounting tool can grab but discover how easy people find it to integrate and use in general. Ask about customer support and try to find quick guides like this one.

Think about the features that you need right now and the ones you’ll want in the future. Accounting tools that support recurring payments will make it easier to offer subscription-based products or services down the road, for example.

If you run your business from your smartphone as much as your laptop or desktop, then check out the apps these programs offer, too. Your goal is to be able to see your business’ health at a glance easily and also quickly dive into invoices, profit and loss reports, expense reports, and more.

Many accounting services targeting small businesses like you will offer a 30-day free trial. Those are great but don’t get tempted to use it as a blind test. It can be challenging to find the time to do all the different integrations, troubleshooting, and account setup for multiple platforms, so there’s a good chance you’re going to stick with the first one you try. Homework first will save you from a headache later. 

3. Keep Those Records

After you have your platform selected and generally know where your accounts and information are, bring it all together. Record everything and follow the money to ensure that your accounting software captures it.

Track and tag expense receipts. Record all your income. Capture both your marketing budget and how much you’ve spent so far. If you have multiple income streams or sales channels, record total revenue as well as revenue per channel.

Thankfully, most of your transactions will be digital. That’ll make it easy to add your financial accounts to your accounting platform, and then you only need to worry about using the accounting software to tag and identify costs. If you do buy anything with cash, record it, keep the receipt, and create a digital copy. Something as simple as taking a photo with your phone and emailing it to yourself before you leave the store can make your accounting life so much easier.

An essential element is appropriately tracking your ecommerce costs for each sale and purchase. You want to clearly record customer information and note when transactions clear the bank. At the same time, you want to be regularly reviewing your vendor and manufacturer payments. Automation can be a tremendous help for keeping inventory levels high and avoiding stockouts, but you must be sure everything can clear, and you can afford to not only buy goods but ship them.

The more you know, the better you can budget and build out predictions to know how much you need and when.

4. Learn about Sales Tax and Shipping Costs

Ecommerce has its own sales taxes. You must ensure that you’re charging people correctly and reporting it, too. If you manage the books for an ecommerce company, you’ll want to regularly audit the financials to ensure you’re collecting the right taxes and that requirements haven’t changed. Ecommerce legislation is happening faster and more often as it becomes a more dominant part of the economy.

If you’re in the U.S., 45 states and Washington D.C. all have a sales tax that may apply to your business. Your business will need to calculate sales tax for most of these whenever you sell to a customer located in those states. While many ecommerce platforms can help you with this process, you are responsible for ensuring that you’re sales-tax compliant and filing any necessary paperwork.

Remember, you need to file sales tax returns in any state where you have an active sales tax permit, even if your ecommerce platform collects sales taxes on your behalf — Amazon’s FBA program does this, as an example.

There are guides to specific states and stores, and it’s worth digging into that information as soon as possible to avoid any long-term headaches.

We’re grouping shipping and sales taxes together because they’re not fixed costs. The ultimate amount you pay for each will always depend on the order size, your location, and your customer’s location. You might find it easiest to deal with this variation by building extra wiggle room into your budget.

There are ways you can work to reduce some of these costs, however. Using dimensional (DIM) weight calculators can help you better estimate product shipping costs or look for ways to save by changing packaging or carrier selection. Knowing the usual zones that you ship to may also help you determine the best warehouse locations or third-party services to use to minimize average cost. That may also make a difference for your taxes because you’ll have to pay taxes on shipping charges that are part of an order in some states.

5. Build Room for Returns, Fees, and Losses

The ecommerce model comes with many accounting surprises that can eat into your profitability. Two of the biggest to keep an eye on are the fees you pay to marketplaces and sales partner channels and the cost of returns. These expenses do end up creating losses for some businesses that are still getting inventory out the door, so take time and be careful.

Review your partner and marketplace agreements to understand associated costs, especially variable ones. Generally, selling through someone else’s service will cause you to pay a sales commission, which can depend on the category, product value, and more. Many services will have minimum fees as well. 

If you use a third-party to manage your inventory and shipping, there are costs related to the size of your products, how long they sit on shelves, and labor costs for boxing them up and shipping them out to customers. It’s always a good idea to compare third-party services with a specific set of questions to understand fees and expectations.

Paying too much to store and ship goods can eat away margins entirely if your pricing isn’t accurate or if the goods move too slowly. 

Returns can compound many of these concerns, too. A returned product might be too damaged to sell, giving you a loss on the sale. You’ll also have labor costs associated with reviewing products and return claims. Customer service agents will need to review claims and see if a customer damaged a product, it was harmed in transit, or if it was defective. All of these come with different costs to you.

You’ll want to review your current rate of returns and replacements, plus related shipping expenses, to understand how much to keep aside for addressing these costs. It can be challenging to track, but it prevents more significant harm to your company.

Is a Bookkeeper Worth It?

Ecommerce accounting is complicated and many sellers, even small ones, look to ecommerce-focused bookkeepers for assistance. Accountants can help make the process run more smoothly and keep you in compliance with the full range of laws that impact your operations.

Bookkeeping mistakes can potentially harm your business on an operational level as you try to ensure everything is paid for, and during tax time. If you’re experiencing bookkeeping mistakes, struggling to keep up with sales tax or quarterly filings, or are worried about these, an accountant can be a useful solution. As your company grows and you take on more employees, expand to new ecommerce channels, hire contractors, or expand operations, an accountant can make sense for protecting the company that you built.

An accountant can provide you with valuable services and take a tremendous weight off your shoulders when they manage your business correctly. When selecting accounting software, consider tools that your preferred bookkeeper knows or can learn, or look to see if the provider can help you find an accountant in your area.

For those bookkeepers out there reading this, work with your company or clients to demonstrate your ecommerce knowledge, and share audit results regularly. The better you work with leadership, the better they can plan and manage the store and products for long-term success.

More often than not, excellent ecommerce accounting takes a team. Build yours as soon as you can to protect your business and be best positioned to grow.

Jake Rheude is the Director of Marketing for Red Stag Fulfillment, an ecommerce fulfillment warehouse that was born out of ecommerce. He has years of experience in ecommerce and business development. In his free time, Jake enjoys reading about business and sharing his own experience with others.