Launching a Shopify business is an exciting venture for any entrepreneur. Ecommerce has changed the retail landscape, making products available to anyone with Internet access all over the world. It has gotten rid of some of the limits of a brick-and-mortar store, as well as barriers to entry for retailers. Even better, the industry is continually growing with new sellers entering the space every day.
Market research, product curation, and anticipation of a new income stream are perhaps the most fun parts of establishing your Shopify store, but you can’t ignore the business side of your operations. Financial stability is the greatest predictor of your business’s success, which is why you need to stay on top of your bookkeeping from the beginning.
The Importance of Ecommerce Bookkeeping
Bookkeeping at its core is the tracking of money in and money out. Regardless of your industry, bookkeeping helps you understand the financial health of your business—and avoid trouble with the IRS.
For online retailers, bookkeeping starts with inventory. Your inventory is the backbone of your business, and it’s the driver of your cash flow. Once you understand how it’s affecting the amount of money passing through your business, you can optimize operations to maintain profitability. On the other hand, if you find yourself overspending, your bookkeeping documents can help you reverse the trend and realize positive cash flow.
This is why the bookkeeping process is so crucial. As an online seller, you should revisit your documents on a monthly (or, at the very least, quarterly) basis to ensure you have an up-to-date view of your finances and that they match the deposits being made into your bank account. You should also do a regular Shopify inventory sync to ensure all your stock information is accurate.
Reconciling Your Accounts
When you reconcile your accounts, you look at your business’s balance and transactions and match them to your bank or credit card statements. If there is no difference between them, your books and your bank are in agreement.
How To Reconcile Shopify in QuickBooks
There are a few ways to reconcile your Shopify sales, but two that are common among online sellers are manual reconciliation and QuickBooks reconciliation. Both manual and digital reconciliation rely on data from three main financial documents:
- Balance Sheet. This is records of your assets, liabilities, and owner equity. One column will mostly consist of your cash and inventory, while the other comprises business-related debts.
- Income Statement. This reflects all the money that came in over a set period of time. Both direct sales and non-operating income are recorded here.
- Cash Flow Statement. The most important document of all, this is a record of all sales, expenses, and other transactions related to your business.
If you’ve never reconciled your Shopify sales, or if it’s been awhile since you’ve been through the process, start with your oldest bank statement—or the first one since you reconciled last—and work through each month until you’re caught up. Starting at the very beginning is your best chance at finding errors and discrepancies.
A cloud-based Shopify accounting software like QuickBooks can help you reconcile faster by automatically downloading information about your sales and presenting it for comparison against your bank or credit card statements.
Within QuickBooks, you can set up automatic reconciliation by completing the following steps:
- Select Tools from the Settings menu and select Reconcile and then start reconciling.
- Select the appropriate bank account; Information will appear according to the account type.
- Enter the appropriate Ending Date, per the last time the account was reconciled.
- Follow prompts for additional information, if requested.
- Compare transactions to bank or credit card statements.
While reconciling, you can set QuickBooks to only display Payments or Deposits, which aggregates the data for a simplified view that’s easier to compare against your statements. You can also manually edit any transactions that aren’t correct. Once you’ve reviewed your transactions and statements, select ‘Finish Now’ and follow the prompts to save and view your reconciliation report.
Running a Shopify store requires keeping track of many, many transactions every single day. There are sales from your customers, monthly seller fees, taxes, and other hidden costs that surprise online retailers when they go to reconcile their accounts. For growing businesses, it makes the most sense to automate their accounting to ensure no details are being overlooked. Offloading that meticulous process saves you the time and hassle, and it cuts back on the time you spend reconciling your Shopify sales because transactions automatically post to QuickBooks whenever you sync.
Benefits Of Regular Account Reconciliation
Accounting is one of the less glamorous aspects of running a Shopify store, but it’s a necessity in order to stay in business. It’s also much easier to maintain good accounting habits than play catch up at the end of the fiscal year, and regular account reconciliation makes this possible. These are the other benefits of regularly reconciling your account.
Eliminates Accounting Errors
Addition and subtraction errors, double payments, lost checks, and missed payments are all common mistakes when running a business. Reconciliation can help you uncover these errors and rectify them, oftentimes in your favor.
Removes Possible Surprises
Bank fees, such as cancelled check fees or overdraft fees, can come as a surprise to Shopify sellers who don’t regularly reconcile their accounts. On a happier note, you might also receive interest payments on your account balance. It’s best to stay informed either way.
Saves You Money
Having a real-time view of your business’s financial health is a surefire way to save money in the long run because you don’t have to (literally) pay for surprise fees or for legal counsel if you’ve found yourself in real financial trouble. Also, once you identify your unnecessary expenses, you can eliminate them.
Lets You Secure Funding
Nearly half of all small businesses apply for financing, according to a recent survey by the Federal Reserve Bank of New York. Investors want to see accurate, timely financial documents, including account reconciliation records, before providing funding.
Viewing your transactions can be tedious and feel repetitive month after month, but a thorough account reconciliation will help you detect fraud. Do you recognize every purchase and expense? If not, you can take the appropriate steps to conduct an investigation and prevent further fraudulent activity.
Bookkeeping With Confidence
More details means more opportunities for error, which is especially stressful in a thin margin industry like ecommerce. However, if you take the time to reconcile your sales in QuickBooks (or by hand) you can rest easy knowing your finances are secure. Then, you can get back to customizing your Shopify store and the other fun parts of being an online retailer.