shopify bookkeeping

The foremost action for error-free accounting is to pick the right Shopify accounting software. You should pick the software based on your company size (small, medium, large), scale of operation (one supplier/product or multiple), accounting method, and expectations. We know firsthand that accounting is rarely anyone’s favorite part of running an e-commerce business.

  • For Shopify merchants, this means that sales are recorded when the payment is received, and expenses are recorded when they are paid.
  • Now, this is just one of the five types of Shopify store models, and managing inventory based on suppliers, products, sourcing channels, sales, and returns can become highly complex.
  • This includes our profit margin calculator, eCommerce annual forecast template, salary cap calculator, financial roadmapping template, and more.
  • Here is a list of challenges you’re likely to encounter as a Shopify seller.

Stay up to date and outsource if you can’t keep up

shopify bookkeeping

Now, this is just one of the five types of Shopify store models, and managing inventory based on suppliers, products, sourcing channels, sales, and returns can become highly complex. It is best to ensure compelling features in Shopify accounting software, such as automation, pattern analysis, and data visualization, for maximum efficiency and better decision-making. Link My Books conveniently connects your Shopify data feed directly into cloud accounting tools like Xero and QuickBooks. It auto-imports and categorizes all your sales, fees, shopify bookkeeping refunds, taxes, and deposits for effortless reconciliation. This means accurately recording each financial transaction, from sales to refunds, and keeping your books balanced.

Keep Accurate Records and Track Financial Performance

The Cost of Acquiring a Customer (CAC) measures the total cost incurred to acquire a new customer, including marketing and sales expenses. By comparing CAC to LTV, you can determine the effectiveness of your customer acquisition strategy. Ideally, if your LTV is 2-3 times your CAC, it indicates that your acquisition efforts are cost-effective and scalable, allowing you to expand your customer base while maintaining profitability. Industry benchmarking allows you to compare your financial performance against similar businesses in your sector. By analyzing key metrics like revenue, profit margins, and returns ratios, you can identify areas where your business excels or needs improvement.

shopify bookkeeping

How to choose the right ecommerce accounting software

shopify bookkeeping

Hiring an eCommerce accountant can provide specialised expertise in managing the unique financial challenges of an online store. They can help with tax compliance, financial planning, and optimising your bookkeeping processes, Accounting For Architects ensuring your Shopify business runs smoothly and profitably. In contrast, automated accounting reduces human mistakes and speeds up financial processes, leading to more accurate financial records and efficient management. Paying taxes above the required amount can jeopardise your bottom line over time, and cause other accounting complications. Automated Shopify accounting software will ensure accurate tracking of expenses and deductions, preventing tax overpayment. Using specialised accounting tools ensures accurate tax calculations and helps you stay compliant with varying regulations in different markets.

shopify bookkeeping

Growth Planning

Moreover, you must use professional services to manage international taxes, including currency conversion, VAT/GST reporting, and customs documentation. As we discussed in the opening sections, sales tax laws and rates differ from state to state in the U.S. Even if you are from another country, your respective tax laws will apply to the transactions bookkeeping in your store. Shopify taxation can be a big headache, especially for newbie Shopify store owners who lack the knowledge and resources to handle it. Many Shopify stores use the dropshipping model (which made Shopify famous), where a store processes the order, places it with the supplier, and the supplier ships the product directly to the customer.