Selling on Shopify is all about freedom of expression for your brand, and that’s pretty exciting for an ambitious entrepreneur.
With Shopify’s unique customization offering, it now powers millions of ecommerce stores and some of the biggest brands in the world including Kylie Cosmetics, Heinz, Lindt, RedBull, Tesla, Sephora, and more.
But the road to growth and success isn’t without bumps, and planning as early as possible for these is the best way to minimize damage. And what can cause the largest, most destructive bumps? Your accounting.
This guide is an introduction to accounting for Shopify sellers, and it is the first chapter of our Shopify accounting hub. In our hub, you’ll find resources that expand on the topics discussed here, and cover everything from apps and integrations to use for your store, to the taxes you need to account for and how.
In this guide, the first of our Shopify accounting series:
Table of Contents
- The 8 Steps For Starting Your Shopify Accounting Right
- What type of business are you creating?
- Separate your finances
- Sign up to the best Shopify accounting software
- Take your Shopify accounting integration up a notch
- Make sure your accounts are recording and categorizing money properly
- Get your Shopify sales tax ducks in a row
- Make a date with your books
- Get a professional to check that you’re on the right track
- Free Shopify Accounting Resources
- Next in the Series…
- Other Shopify Resources
Learn how to manage your Shopify accounting the right way
If you want to scale up your Shopify business, you need reliable accounting. Discover the best tools, key tax information and how to ensure that your Shopify accounting is set up for success.
Let’s explore these a little more deeply.
The 8 Steps For Starting Your Shopify Accounting Right
Follow these steps to cover all your bases and be open for business with confidence.
- What type of business are you creating?
When we say ‘type of business’, we mean in a legal sense. This is an important place to start and to consider carefully because the type of company or business you set up will dictate your financial obligations down the road.
The types of business you’ll have to choose from and what that means for you will be based on where you are located. Usually, they fall into these three categories:
- Sole trader or proprietorship: Your business profit and loss is declared as part of your personal income. Get more information on this here.
- Partnership: When two or more people come together to share the work, profits and debts of a business.
- Company: A separate entity where directors and shareholders are responsible for debts and entitled to a share of profits.
See this article for more descriptions of common business structures and what they entail.
Shopify also has a blog about business structures, their pros and cons, and how to choose your direction. See this here.
If you’re unsure which to choose, it might be worth skipping to step 8 to find professional help and advice.
- Separate your finances
Our specialist ecommerce accounting partners have specified this step as a common one missed by many of their clients. Your personal cash flow shouldn’t be mixed up with business if you want to understand how your business is truly performing on its own.
Make sure your business expenses (including your Shopify subscription) and payouts are all connected to a dedicated bank account – not your own one!
- Sign up to the best Shopify accounting software
Cloud accounting software for Shopify is a no-brainer.
Not only can it process scalable volumes of orders and information, but it’s instant, accessible from anywhere, and protected by the latest encryption technology available.
But with endless options on the market, which is best for Shopify businesses – and more specifically, which is best for yours?
In the next part of our Shopify accounting hub series, we explore the industry leaders on the market and how their offering suits Shopify sellers in particular. We focus on QuickBooks, Xero, and Sage, and break down why they’re great and how to make them even better.
But we’ll touch on that next too.
- Take your Shopify accounting integration up a notch
Once you’ve chosen your Shopify accounting software, there’s one extra step you need to take to ensure you get the biggest bang for your buck. And that’s integrating Fiflow.
Fiflow isn’t just another app. It ensures that all the data that is shared between Shopify and your accounting software is organized properly, usable for you, and comprehensive. These three things are not a given without it.
Fiflow breaks down what your Shopify payouts are made up of, posts summaries of these income and expense lines so that your accounting software can process more information efficiently, and then organizes your books via the accrual method of accounting.
These things give you automatic and reliable numbers that you can use to make informed decisions about your business. It’s accurate accounting without the fuss – even better, you can try it for free.
- Make sure your accounts are recording and categorizing money properly
This one might seem obvious, but without your input in the beginning, it won’t happen by itself.
The first step is integrating your Shopify store with your accounting software and A2X to ensure data is shared between them automatically. Then, you’ll need to categorize your income and expenses by setting up your chart of accounts and tax mappings.
If these are already set up in your accounting software, you can import them and use the same ones.
These are like a blueprint. You’ll decide how you want your finances to be organized and your accounts will use these instructions every time a transaction comes in and goes out.
This is extremely important to ensure that you don’t mistake certain income as profit, or miss any expenses your business may be accruing.
How you set these up will depend on the accounting software you choose. You can find links to instructions for QuickBooks, Xero and Sage by clicking on their respective links.
- Get your Shopify sales tax ducks in a row
Sales tax must be a priority for every ecommerce seller. Gone are the days of flying under the radar: the radar is firmly pointed in your direction.
While there are thresholds of revenue you need to meet before you are required to start collecting and remitting sales tax, these vary greatly within the US and overseas. It’s important that you get a handle early on, on what the rules and regulations are, how they will apply to your business, and when they’ll apply.
Sales tax is a huge topic that heavily depends on what you sell, where and how. For this reason, we have dedicated guides to help you better understand everything below. We’ll also be covering it in this Shopify accounting series.
- The Ultimate Guide to Shopify Sales Tax
- How to Collect Shopify Sales Tax
Your key concern at this setup stage is to understand which revenue thresholds will push your business into the “tax eligible” category, and what you’ll need to do when that happens.
- Make a date with your books
Going into business is the same as entering a committed relationship. To make it work, you’ve got to get to know it intimately.
And that means regular dating.
Check in frequently with your books. By automating them, you have access to instant, up-to-date records and reports – so use them.
Your books aren’t there merely to help you claim back tax, tick legal boxes, or make the IRS happy. They should be at the center of all your decision-making.
Unsure what your books are telling you? That’s what the next step is for.
- Get a professional to check that you’re on the right track
Having a specialist ecommerce accountant for your business can be invaluable, particularly if you have automated your books.
By letting the machines do the number crunching, your accountant can help you with strategy, and advise you, based on their industry expertise, about how to get the best out of your business.
If you can’t afford or don’t want to hire an accountant right away, consider consulting one temporarily to look over your initial accounting set up. They can help you with every step listed here and ensure that you have the tools you need to go it alone for a while.
Here are a few more resources that might help you with this step:
- A trusted directory of specialist ecommerce accountants.
- How to find an accountant and what to ask them. (This blog may focus on Amazon sellers but the information is just as relevant to Shopify).
Free Shopify Accounting Resources
Are you looking to learn more about accounting for Shopify? Well, you’re in the right place. This blog is just one part of a larger Shopify accounting academy, full of useful resources that nail down every aspect of bookkeeping that ecommerce sellers need to know – whether you’re a beginner or a pro.
There are also plenty more resources on other aspects of Shopify selling from choosing themes to the best things to sell this year, over on the blog.
Next in the Series…
This blog is a part of the Fiflow Ecommerce Accounting Hub.
Next up for Shopify is our comprehensive Shopify accounting guide for help with your ongoing bookkeeping and accounts management.
Other Shopify Resources
- How to Sell on Shopify in 2022
- The Best Products to Sell on Shopify in 2022
- How to Find the Right Themes for Your Shopify Store
- How to Remove ‘Powered by Shopify’ from Your Store