Just about anyone can start selling online, but not everyone will be successful.
Those success stories are founded on talent, creativity, and passion – but they also depend on excellent management of the money that drives them.
Cash flow is like blood flow. It powers every organ of your business and if it’s not nurtured, maintained, and regularly vetted, it can cause serious, compounding issues.
In the first part of our Shopify accounting hub series, we looked at the 8 setup steps to help you set the scene for your new venture.
Now, we’ll dig a bit deeper into some of those steps and look at specific software and app options, the elements of ecommerce accounting that make it uniquely challenging, and how to get the best out of the tech you choose.
In this guide, the second in our Shopify accounting hub series, we talk about all things Shopify accounting and the apps to automate it:
Table of Contents
- What Makes Ecommerce Accounting Different?
- 4 things that make ecommerce accounting unique
- Ecommerce and Shopify Accounting Basics
- Firstly, what’s the difference between accounting and bookkeeping?
- Shopify Accounting Software
- Why Shopify sellers need to use cloud accounting software
- The best accounting software for ecommerce and Shopify
- How to choose your Shopify accounting software
- Shopify Accounting Apps and Integrations
- Connector apps for ecommerce-optimized books
- Tax apps for compliance as you grow
- Outsourced fulfilment apps and integrations
- Inventory management apps for ultimate visibility
- Other Shopify Accounting Tools
- Shopify’s margin calculator
- Shopify’s CPM calculator
- Shopify’s discount calculator
- The Fiflow Shopify blogs
- Shopify POS Reconciliation
- Next in the Accounting with Shopify Series…
- Other Shopify Resources
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What Makes Ecommerce Accounting Different?
Business accounting is a challenge for anyone new to the industry.
A lot needs to be accurately accounted for in order to keep your expenses low, your margins high, and the IRS happy. Without these three things intact, your business won’t go very far.
On top of the general difficulties that come with running a business, ecommerce throws some additional, unique challenges into the mix.
Selling more things, potentially further away and across the world introduces different currencies, time zones, taxes, and fulfilment challenges. You’ll have subscription fees, potentially transaction fees for non-native payment gateways, not to mention up-front costs like domain names, themes, and any store plug-ins.
That’s just the tip of the iceberg.
As an introduction to the complexities of ecommerce in particular, below we break down the four key challenges and what their solutions look like.
After this, we’ll take a step back and take the time to understand those solutions mentioned more deeply.
4 things that make ecommerce accounting unique
These may feel a little overwhelming at first, but this guide is all about overcoming these challenges.
1. Ecommerce transaction volumes are almost limitless
Of course, this will depend on your inventory and how you manage it. But with no “open hours” and the potential for cutomers in different time zones shopping around the clock, transactions can be constant, and can quickly become overwhelming.
This is especially true if you manage them all manually – both in terms of fulfilment and bank reconciliation.
The first solution: Accounting software is designed to automate the recording of your transactions and give you a bird’s eye view over your financials. This is just the start, but a crucial first step.
The optimized solutions: A2X offers a COGS feature which updates your inventory as you sell. For greater volumes of stock, check out dedicated inventory management apps to integrate with your accounting software. We’ll explore further later on.
2. Inventory management can quickly become a mess
Aside from heavy transaction volumes, inventory management can be problematic in other scenarios too.
If you sell via multiple channels (or want to eventually), or you outsource your fulfilment to another supplier (like Amazon FBA), you need to retain visibility over your stocks.
You’ll need to restock or pull back on your inventory depending on what’s in stock, what’s in transit, and what’s being returned at any one time. What’s more, these needs can be unique to each of your selling channels.
Plus, Amazon FBA, for example, charges you for storage as well as fulfilment, so if you do outsource, keeping tabs on your stock levels in their warehouses will mean extra money saved in the long run.
The solution options: Inventory management apps will help you keep visibility over your stock levels. By integrating these directly with your accounting software, as transactions come in, the app will update your inventory automatically.
If you are interested in outsourcing, these will still be useful to ensure you aren’t caught out with long-term storage or removal fees.
3. Your Shopify settlements don’t tell the whole story
Just as you can have huge numbers of transactions to reconcile, the information about them needs to be broken down too. And unfortunately, your settlement statements won’t necessarily show you everything.
Your bank deposits are not profit. Out of those deposits came your fees, perhaps shipping costs, and into them went sales tax, and reimbursements for any returns. You need visibility over these details to understand the movements of all aspects of your business, and to ensure it remains compliant with its legal obligations too.
But that’s a hugely time-consuming manual process. You would need to go through each individual bank deposit and figure out, based on your various records, what resulted in the final amount. Imagine doing that for thousands of transactions, and perhaps across multiple platforms.
Well, you don’t have to – you can automate it.
The best solution: Fiflow was designed with this significant ecommerce problem in mind. Each bank deposit is split out into its various line items, all tied together in neat journal summaries that are posted to your accounting software.
Your books are organized, tidy and reconciliation takes a few clicks rather than hours or days. It does a few other cool things too, but we’ll cover those later.
4. Expansion means more complex tax obligations
This might be fourth on the list but it’s a big one. Sales tax is complex enough even within the US alone, let alone once you venture overseas and into VAT and GST territory.
Your business will need to meet certain revenue thresholds in various locations before it’s required to start collecting and remitting sales tax. But these thresholds are different across the board (yep, even across the US), and rates paid vary too.
Whilst you can set Shopify up to add tax on at checkout, it doesn’t collect or remit this for you. You need to keep a tight handle on what you collect and where it needs to be sent – whether you’re selling at home, to a neighbouring state, or to the other side of the world.
The first solution: Having Fiflow integrated with your accounting software and Shopify store will show how much sales tax you have collected per bank deposit. This way, you can ensure that none is missed.
The optimized solution: Tax apps for Shopify help you collect the correct amounts by location and remit to the right places. These give you the next level of confidence and verification that you’re staying compliant. We’ll look at a few of these below.
You may also want help from a specialist ecommerce accountant for this too. We would always recommend working with one from the beginning if you can, but at the very least you’ll want to ensure your taxes are handled properly.
Ecommerce and Shopify Accounting Basics
Now that we’ve covered some of the things you need to be aware of when it comes to your Shopify accounting, let’s throw on the brakes for a moment.
It’s worth covering the foundation of accounting as a discipline too, so that you can see why certain tools exist for Shopify sellers and what they can do for your business.
Firstly, what’s the difference between accounting and bookkeeping?
You might find these terms thrown around interchangeably (or at least, it may seem like that to the untrained eye). But they are different things.
Bookkeeping is an accounting practice that consists of recording and organizing financial information. It’s the detail.
Examples of bookkeeping tasks for Shopify sellers would be reconciling your accounts, maintaining balance sheets, and categorizing your transactions.
Accounting is the bigger picture: it involves working with these records to come to conclusions about the health of a business. It’s the overview.
Examples of accounting tasks for Shopify sellers could be tax planning, reports, and filing, forecasting, auditing, and preparing to sell your business if you choose to do so.
Your Shopify bookkeeping must be comprehensive and accurate in order to perform efficient accounting tasks and drive growth.
And that’s what we’re going to look at next: the tools to help you achieve just this.
Shopify Accounting Software
Even if you’re an accounting pro, it’s impossible to get the same level of accuracy and efficiency with spreadsheets as it is with cloud accounting software – not to mention security.
By eliminating the risk of falling behind or missing transactions, accounting software keeps your books up to date, your numbers crunching and your bank deposits accounted for.
Cloud accounting software is also incredibly secure. Information is encrypted, and you can control access levels so that viewing your books isn’t a question of all or nothing.
Why Shopify sellers need to use cloud accounting software
1. Your books stay up-to-date and nothing gets missed.
Keep the numbers crunching in the background 24/7. Your records don’t depend on you making the time to input them manually and correctly every time.
2. Your books are secured by the best encryption technology.
While no method is ever 100% secure, this is the closest you can get. Check out the security measures of the software you’re researching to ensure they meet the highest industry standards.
3. You have an instant visual of your cash flow and bank deposits.
Want to see how you performed last month? Without accounting software, this might consist of a few hours of manual calculations.
4. You have access from anywhere with an internet connection.
If you move around a lot or want to see your accounts on the go, this will be invaluable.
5. You can set access levels for others wanting to view your books.
If you work with an accountant, are looking for stakeholders, or even hire another employee, you can control what aspects of your books they can see.
6. You can add apps and integrations to optimize certain aspects of your books.
If your business needs particular attention with regards to inventory, tax or something else, you can automate this to give you optimized operations without the extra time constraints.
The best accounting software for ecommerce and Shopify
Hopefully, you can see from the above how using accounting software is a no-brainer for any ecommerce business.
With this in mind, let’s explore our top picks for Shopify accounting and what makes them so great. We’ll be focusing on QuickBooks, Xero and Sage.
QuickBooks Online & Shopify
See pricing plans for US sellers here.
Widely rated as one of the top accounting software options for businesses, QuickBooks offers sellers a lot of choice and room to expand.
Its features include basics like an easy dashboard for quick reference of your financials, reconciliation, CRM, estimates and invoicing, and even a client portal.
Then there’s the option for advanced customizable reporting, and data synchronization with multiple other apps and integrations for a customized stack – both within and outside of the QuickBooks product range family.
One of these products is QuickBooks Commerce, an expansion of the accounting platform designed specifically for sellers just like you:
Xero & Shopify
See pricing plans for US sellers here.
Another award-winning accounting software provider, Xero is a fantastic option for ecommerce sellers.
With plans starting small for sellers finding their feet, Xero can grow with you. It’s particularly popular with sellers in Australia, New Zealand and the UK but still boasts around 200,000 users in the US.
With features including all the basics that ecommerce sellers need along with around 160 currencies with automatic conversions and updated rates, you can expand with confidence.
You can find instructions to integrate Shopify and Xero here.
Sage & Shopify
See pricing plans for US sellers here.
See pricing plans for UK sellers here.
One of the top software providers in the UK, but available across the world, Sage can offer sellers access to a suite of apps and integrations to take their books to the next level.
With a dedicated app marketplace, Sage users can easily find compatible and industry-approved options specifically designed to solve their problems.
Join the Sage family for a comprehensive service, plenty of choice and customization, and excellent customer support.
How to choose your Shopify accounting software
You’ve got three great options above, so how do you choose between them?
Think about your business and what it’s current and most likely future needs will be. Are you hoping to expand across other channels? Into foreign marketplaces? Into new product lines or suppliers?
By articulating where you want your business to go, you can nail down which features you’re going to need to get there. And you can use this to check out which software provider will better suit your journey and your bigger picture.
This will also help you plan for the other operational areas you may want to automate through apps and integrations, because there’s no shortage of these for Shopify.
Shopify Accounting Apps and Integrations
Shopify is a playground for ambitious, creative ecommerce entrepreneurs.
With the greatest customization opportunities, the apps and integrations available go well beyond accounting. Sellers can level-up shopping experiences using AR, VR and chatbots, and offer customers more ways to pay than ever before.
We go into more detail about this in our blog How to Sell on Shopify in 2022, so right here, we’re staying focused on accounting.
Here are some particularly helpful apps that integrate with your accounting software for the best possible bookkeeping experience.
And bear in mind that many software options will offer multiple features which could include more than one of the below, so it’s always best to plan out everything you might need and see which solutions give you the most for your money.
- Connector apps for ecommerce-optimized books
If you’ve learned nothing else so far in this blog, it’s that ecommerce accounting requires a different tack than usual. Fiflow automates the optimization of your books for ecommerce purposes.
Fiflow not only ensures that your numbers are accurate, automatically calculated, and organized into your accounting software in summaries that save it from clogging up, but it helps you with the next parts too.
Fiflow will match its summaries to your payouts so that reconciliation is simply a matter of checking the pair and confirming the match. It splits settlements that span months, keeping your monthly performance easy to track, and it takes future cash flow into the account.
This accrual method of bookkeeping is the most accurate way to forecast and get the most honest view of your business financials. This way, you can keep an expert handle on your financials in a fraction of the time.
You can try it for free today and be set up in minutes. Use the integration guides above for your accounting software of choice.
- Tax apps for compliance as you grow
We mentioned tax apps under the first section as good solutions to growing tax obligations both within the US and overseas.
These integrate with your accounting software and help you set aside the correct amounts of sales tax. They can also help you automate the entire filing process in some cases, like this service from TaxJar:
- Outsourced fulfilment apps and integrations
Keen to save time and have someone else manage your shipping? You can find a range of options on the Shopify app marketplace, all of which can be integrated with your store and ready to go. These suppliers make it easy to automate the distribution of your products.
Remember to have Fiflow connected to account for the additional costs that come with using a third-party fulfilment supplier.
As a Shopify seller, you also have access to two huge fulfilment networks in the US and Canada: SFN and FBA.
SFN (Shopify Fulfillment Network) is for sellers to step back from their fulfilment altogether and have the platform manage it for them:
To get a piece of the Amazon FBA action, check out their Multi-Channel Fulfilment Network for non-Amazon sellers here.
- Inventory management apps for ultimate visibility
We mentioned inventory management in the first section with regards to its challenges for ecommerce sellers.
Whether you outsource your fulfilment or not, if you don’t operate a dropship business model then inventory will be on your tasklist. Apps help ensure that it remains under control and tracked, no matter who fulfils your orders or how many channels you sell across.
QuickBooks Commerce mentioned above has inventory management features built in. But you can find other apps on the Shopify marketplace too.
Think ahead: will you consider multi-channel selling in the future? Perhaps look for software that offers this kind of integration at a later date so that you won’t have to switch up your tech stack.
Other Shopify Accounting Tools
So aside from having a central hub for all your financial operations, are there additional free and simple Shopify accounting tools out there that could be helpful to sellers?
- Shopify’s margin calculator
If you’re new to ecommerce and to accounting, you may be looking for help with pricing your products. Shopify has its own margin calculator to help you make smart decisions and ensure profitability.
It’s a simplified version of the process, since it requires you to know the cost of goods sold in order to input one value, but it will help put instant numbers to your ideas:
Make sure you include the final value you paid for an item after things like shipping costs. Here’s an article about COGS, what to include in it and how to calculate it.
- Shopify’s CPM calculator
Shopify also provides a simple calculator for advertising costs. Customer attribution counts as COGS, and should be accounted for in order to ensure profit margins are not lost in marketing costs.
- Shopify’s discount calculator
If you want to run a sale or special offer, Shopify has this easy discount calculator to help you see the numbers before making a decision.
- The A2X Shopify blogs
Here at A2X, we’ve been working with ecommerce sellers for years now. We have learned a lot about what unites them and what makes them unique by their platforms and business types.
Here are just some of the A2X guides that you can find on Shopify over on the blog:
- The Best Products to Sell on Shopify in 2022
- How to Find the Right Themes for Your Shopify Store
- Everything You Need to Know About Shopify Payments
- Shopify SEO Tips
- 15 Actionable Tips to Grow Your Shopify Store in 2021
- How to Cancel, Close or Pause Your Shopify Store
We’ve done the legwork so you don’t have to!
Shopify POS Reconciliation
Shopify is not exclusive to online sellers.
It can also provide a bridge between ecommerce and in-person retail stores through its POS system. This way, physical stores have one accounting hub that unites all aspects of the business.
If you are interested in Shopify POS, check out our dedicated blog for more specialized information:
- How to Get Reconciled Shopify POS Accounting
Next in the Accounting with Shopify Series…
Where do you start when it comes to taxes? Sales tax isn’t the only thing sellers need to worry about when it comes to the IRS, and our next blog explores exactly this.
We’ll cover which Shopify taxes you need to collect and how. Plus, as always, the best automation options to do it for you!
Other Shopify Resources
- Why You Should Be Using Shopify Payments
- What We Learned by Analysing 1000 Shopify Payment Gateways
- Buyers’ Guide to Shopify Automation