Shopify is a great way to launch your small business. Ecommerce businesses are on the rise right now because of the popularity and convenience of online shopping. However, succeeding in the online marketplace is a long and tiring journey. Aside from brainstorming about products you’ll be selling and how to advertise your business and other marketing strategies, you also need to stay on top of your finances.
Even small businesses have accounting needs. For many owners, accounting is the most tedious part of running a business. But you don’t need to be scared of handling your finances.
Here are 6 tips to help beginner Shopify sellers overcome their demanding accounting needs.
1. Open a bank account for your Shopify Business
If you are the sole owner of your business, you are not legally required to open a separate bank account to accommodate your business transactions. But it is best to open a separate bank account where you can stash your income anyway. This setup will track your sales and expenses more accurately than when you combine your business earnings with your personal savings account.
Furthermore, separate bank accounts will help when tax season arrives. There are business and personal accounts to pay; mixing the two together will make your calculations more difficult. After setting up a bank account, it will also be good for your business to apply for a separate credit card.
You can use credit cards for business emergencies, especially when you don’t have enough liquid assets. This will also help you avoid using personal credits in business transactions.
2. Set up a reliable bookkeeping system
The process of keeping books involves keeping track of all of your company’s daily transactions. It provides you with a clear image of your company’s finances and the state of your cash flow. There are different types of bookkeeping categories to help you manage your finances: assets, liabilities, incomes, expenses, and equity. Each of these categories makes up your general ledger, which accountants analyze to determine the overall health of your business.
You can start developing your own bookkeeping system using a traditional spreadsheet. But when your company expands, we advise you to use bookkeeping software. It automates the entire bookkeeping process for your business, so you spend less time recording data and prevent crucial errors.
An established bookkeeping system will help your business with your future plans. Clean and organized books will help you land bank loans, look for sponsors, and will help if the IRS comes to audit your business.
3. Establish your payment channels
You have to make it easy for your customers to pay you, so establishing as many payment channels as possible is important. Some customers will use credit cards or debit cards. It would be best to consider other channels like Google and Apple Pay. Once you have established your payment channels, make sure you can integrate them into your accounting software.
Integrations will allow your payments to go directly to your accounting software, so every time someone pays, the software automatically records it. You will have real-time access to expenses and monitor them over time to know if your business is losing or gaining profit. These insights will allow you to strategize more effectively to improve your business further.
4. Familiarize yourself with Shopify tax regulations
Taxes play an important role in accounting, so if you want to make ecommerce accounting easier, understand and know the tax regulations that Shopify imposes. In addition, different ecommerce platforms have regulations, so always make it a habit to understand their terms to prevent future complications.
For example, Shopify will help you collect sales tax from the items you sell, but it is your duty to determine the proper sales tax rate and file and remit them to proper tax collection agencies. Furthermore, the money you earn from Shopify is eligible for income taxes. Consider all the taxes you need to pay before officially launching your Shopify business.
This will help you keep on top of your tax obligations and prevent you from the shock when you see your bills at the end of the tax season.
5. Account for inventory and cost of goods (COGS)
If you’re a Shopify seller, your business is probably product-based. It means you have a stash of your products awaiting customers. Inventory management is the key to a booming business. You can’t stock up on products that will not bring you profit, and it’s also a hassle to always run out of the product that people are raving for.
An inventory system will give you real-time information on the number of your products. It can produce reports that can show you which of your products run out fast and which ones take a long time before selling. These reports will help you strategize to maximize your cash flow. This way, you won’t be investing in a product that will not yield a positive return on investment and can allocate your resources better.
6. Seek professional help for Shopify Accounting
No business owner would say that they like doing accounting. It’s understandable. Accounting covers a wide range of finances; not all business owners are equipped with the proper knowledge to handle accounting alone. The best course of action is to seek professional assistance.
There are accountants for hire who have expertise in ecommerce accounting. Hiring a professional will ease the burden of accounting, leaving you to allocate your time to other parts of your business. Moreover, professional help will ensure that your accounting needs are met and will help you make sense of your business finances.
Of course, getting professional help is an investment, especially for small businesses. So we recommend identifying what your business needs the most. For example, only hire a professional bookkeeper if you need bookkeeping services. If you need an accountant, hire a professional accountant to consult with you on a schedule so that you won’t have to pay for full-time work.
Managing a business is exciting and tiring at the same time. Carving your way to success is a long process, and proper accounting is one of the biggest challenges in your way. Securing a bank account, establishing a bookkeeping system and payment channels, and inventory management are just a few of the best practices for small business accounting.
When everything is overwhelming, you can always look for a reliable, professional Shopify accounting expert to help you manage your accounting needs. We hope these simple accounting tips for new owners help jumpstart your Shopify business.
Mike Pignatelli, CPA, is the CEO of Unloop Accounting, an agency built to meet the accounting needs of modern ecommerce businesses. As an experienced financial controller, Mike has worked with various seven-figure inventory businesses. Mike and his team are your go-to accountants if you need reliable data to make sound financial decisions.