Running an online store on Shopify offers many advantages, but as your business grows you need more than a great product. You need rock-solid bookkeeping for Shopify to make smart financial decisions.
Shopify stores generate frequent financial transactions. Without proper accounting, you lack the data to analyze costs, profits, inventory and other key metrics. While Shopify accounting may seem challenging, cloud-based software makes it much more manageable.
In this comprehensive guide, we’ll cover everything you need to know about bookkeeping for Shopify:
Why Bookkeeping Matters for Ecommerce Businesses
Proper bookkeeping provides the foundation for a profitable Shopify business. Here are some key reasons to make accounting a priority:
Maintains a Stable Business Model
Access to accurate financial data allows you to build a stable business model. Strong bookkeeping practices are a hallmark of successful companies. You’ll stay prepared for tax audits and have the metrics needed to make smart decisions.
Enables Accurate Financial Forecasting
Quality bookkeeping gives you the data needed to confidently plan for the future. Want to expand your product line or move into new sales channels? With detailed sales reports and cash flow statements, you can realistically assess business opportunities.
Ensures Tax Compliance
As an ecommerce owner, you have enough to worry about without tax headaches. Proper accounting helps you accurately collect, file and pay sales tax, income tax and other required taxes.
Improves Ecommerce Effectiveness
Leading Shopify sellers have two things in common: excellent bookkeeping practices and clear accountability for financial data. Whether you use accounting software or have an in-house bookkeeper, timely and accurate numbers are essential.
Best Accounting Software for Shopify
Shopify doesn’t include built-in accounting, but integrates with top software solutions. Two popular choices are QuickBooks Online and Xero.
These cloud accounting platforms provide:
- Easy multi-user access
- Bank and credit card syncing
- Invoicing and expense tracking
- Financial dashboards and reporting
- Sales tax tools
- Inventory management
- Shopify integration
Xero also offers a robust app marketplace. Top integrations like Hubdoc for receipt management and TaxJar for sales tax make Shopify accounting highly efficient.
Key Benefits of Cloud Accounting Software
Cloud platforms transform bookkeeping for Shopify from a headache into an asset. Here are some top benefits:
Simplicity
You don’t need an accounting background to record transactions, track expenses and generate reports. The software is intuitive, with helpful guides and customer support.
Cost Savings
Cloud accounting delivers far more value than hiring a full-time bookkeeper for most small businesses. The software pays for itself through enabling better financial decisions.
Real-Time Data Access
Gone are the days of waiting until month-end for updated reports. Cloud accounting provides 24/7 access to sales, profit, inventory and other metrics from any device.
Fraud Prevention
Robust platforms include strong security protections like role-based access and activity logs. You can limit access to sensitive financial data to prevent fraud.
How to Do Bookkeeping for Shopify
If Shopify accounting is new territory, here are some key things to know:
Maintain Separate Business Finances
A common mistake is mingling personal and business finances. Your Shopify store needs its own dedicated bank account used only for receiving profits and paying business expenses.
Learn Key Reports
Become familiar with the financial statements that drive business success:
- Balance sheet – Assets, liabilities and equity
- Profit and loss statement – Revenue, cost of goods sold, expenses
- Cash flow – Cash inflows and outflows
- Inventory – Product costs, quantities and sales
Understand Sales Tax Requirements
Sales tax can be complex for ecommerce businesses. Tax rules differ based on your business location and where customers are located. Your accounting system should help you maintain compliance.
Use Cloud Accounting Software
Cloud platforms eliminate the manual work of Shopify accounting. They automatically import bank transactions, export reports and provide tools tailored for ecommerce.
Shopify Accounting Best Practices
Here are some top tips for optimizing your ecommerce accounting:
Reconcile Accounts Frequently
Errors like duplicate transactions can occur. Regularly reconciling your accounting system with bank statements catches problems early. You’ll also understand why discrepancies happen.
Closely Track Inventory
Knowing your inventory levels ensures adequate stock to meet customer demand without tying up excess capital. Accounting software simplifies inventory tracking and valuation.
Record All Expenses
It’s common to overlook certain operating expenses. Be diligent about recording costs like rent, payroll, utilities, loan interest and insurance in addition to product-related spending.
Automate Transactions
Automated imports of bank feeds, credit card expenses and Shopify data save massive time over manual entry. You’ll avoid data entry errors while freeing up hours for business analysis.
Conclusion
Effective bookkeeping is the bedrock of a successful Shopify business. By leveraging user-friendly cloud accounting software, automating transactions, and following accounting best practices, ecommerce owners get access to the timely financial data needed to make smart decisions. Robust accounting practices give Shopify entrepreneurs the foundation to efficiently manage operations, remain tax compliant, and drive business growth. With the right tools and discipline, bookkeeping can be an asset rather than an obstacle for online retailers.
