An ecommerce business is one of the most promising industries to be a part of nowadays. However, it would be far from the truth to say that all ecommerce ventures turn out to be financial successes.
With a volume of up to $5.5 trillion in e-commerce sales in 2022, there are a lot of great opportunities to earn a living through selling products online. But to have a successful e-commerce business, you need to get some of the basics in place. Good marketing, product-market fit, and sound accounting and bookkeeping rhythms.
Bookkeeping is an important aspect of running an ecommerce business on Shopify or Amazon, as it helps you to accurately track your income and expenses and make informed decisions about your finances. To have a good bookkeeping system in place for your ecommerce business, you need to follow some sound best practices. Here are six that you should start with.
1. Use a Bookkeeping Software
Bookkeeping can be time-consuming if you do it all manually. So, using bookkeeping software will ensure you keep track of your finances effectively. Look for a software that integrates with your e-commerce platform, so that you can automate tasks like data gathering, profit reporting, and so on.
Finaloop is the only ecommerce-tailored bookkeeping software. There are also many generic bookkeeping software options available for ecommerce businesses, such as QuickBooks, Xero, and Zoho Books. These tools can help you automate many of the bookkeeping tasks and make it easier to track your finances.
2. Set Financial Targets
When setting an ecommerce bookkeeping rhythm in place, it’s important to set financial targets for your ecommerce business. This way, you get to measure success more objectively and make informed decisions that will help you grow your business. Some targets you should set include:
- Gross revenues
- Net profit
- Profit margin
- Customer retention
- Customer acquisition costs
When setting financial targets, be realistic about your sales forecasts. Take into account factors like past sales trends, industry benchmarks, and the overall economic climate. While you want to have realistic targets, leave room also for aspiration. Give yourself a target that you would be proud of when you’re able to achieve it.
3. Track Your Inventory
Many ecommerce businesses fail because they don’t effectively track inventory. Having a system to manage your inventory ensures that you keep expenses predictable and avoid any deadweight losses. It also curbs internal or external theft and helps you ensure your business stays profitable.
Keep track of your inventory levels and costs, so that you can accurately track your expenses and make informed decisions about reordering products. Systems like Vend make for great inventory management systems. You can check out these other Vend alternatives if you want to keep your options open.
It definitely helps to have the best POS systems integrated into your systems as well.
4. Record All Profits and Expenses
Good bookkeeping entails recording all your cashflow— your money going in and out of your business. Every time money moves, you’ll need a record. You’ll want to batch all expenses in terms of category and your sales in terms of product and sales channel.
Have all your records centralized somewhere so you can take a look at it and see if you can lower expenses or re-channel resources to products or marketing channels that convert well. You’ll need the best ecommerce accounting software and good practice of recording sales and expenses as they come. Some sales that you should record include:
- Marketing costs
- Manpower costs
- Cost of products sold
- Sales tax
- Shipping costs
- Website maintenance costs
- And so on
5. Determine Your Break-Even Point
It’s always good to remember what number you need to make to break even in your business, so you keep your company afloat. Break down that break-even point into daily, weekly, monthly, quarterly, and annual targets.
You can also use AI accounting or AI bookkeeping software for ecommerce sellers to monitor which days or weeks you’re surpassing those breakeven targets, when you are considering hiring a bookkeeper for an ecommerce business to keep track of your finances and help you determine if you’re hitting your sales targets or not.
6. Maintain a Reporting System
Having a reporting system in place is crucial for any ecommerce business because it lets you track key metrics, identify trends, and make data-driven decisions. Your reporting system can include other aspects of your business, including sales, marketing, customer behavior and more.
Some key metrics to track include website traffic, conversion rate, customer lifetime value, and return on investment for marketing campaigns. A reporting system can be as simple as an excel sheet. Many ecommerce platforms also have built-in reporting systems that you can simply export into an external record. Some good ecommerce platform examples with great reporting include:
Accuracy in Finance Brings Business Growth
Ecommerce will continue to grow over the years as experts expect it to reach $8 trillion in value by 2026. Good bookkeeping and finance management will help you ride that growth wave.
By following these best practices, you can ensure that your bookkeeping is accurate and efficient. It gives you a better understanding of your financial situation and makes informed decisions about your business to improve your bottom line.
We are a technology company providing automated end-to-end accounting service to ecommerce businesses. Our system connects to your apps, syncs all your data and reconciles your books in real-time, replacing your bookkeeper, your accounting software, and your ecomm integrations. We offer reconciled books available 24/7, tax-saving insights, and a single place for all your financial data.
*The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.*