The Definitive Guide to Shopify Accounting
You’ve finally decided it’s time to open an e-commerce store, and you’ve chosen Shopify as your sales platform. Great job – you’ve made the first step. More than likely you’re now smack bang in the middle of a whirlwind of activity – developing product, building a business plan, devising a marketing strategy – all super important parts of starting and running your own business.
You’ve been told the first couple of years in business will be hard – and we won’t lie, it is. Running your own business, especially e-commerce, can be labour-intensive and overwhelming – so if there’s one thing you could do to set yourself up for success right from the start, you’d do it, right?
Accounting is one of those things small business owners tend to neglect until it starts causing them a problem (like Nick Losciuto). Either they try and do it themselves to save money, or they wait six months until they’ve made enough money to cover the cost of an accountant.
From experience, we know that 9 times out 10 small business owners regret their decision to wait. The one thing they wish they’d done is invest in the right back-office tools from the beginning.
In this guide, we’ll look at why you should set yourself up with the right back-office from the get-go, what apps and integrations to use, and what it all means for your Shopify business.
Table of Contents
- Accounting systems for Shopify sellers
- Why you should use an accounting connector
- Tax software for Shopify sellers
- Shopify’s profit margin calculator
- Why work with an e-commerce specialist accountant
- Benefits of a well-established back office
Accounting systems for Shopify sellers
First things first – you don’t need to have a degree in accountancy to manage your business finances (although we’d highly recommend working with an e-commerce specialist accountant). The job of accounting software is to automate certain processes, so both you and your accountant can better understand where your business is headed.
It’s near impossible to scale a business without a stable accounting framework, so the sooner you can invest in reliable and accurate accounting software, the better. The reason being, accounting is fundamental to expense and revenue management – working without it would be like throwing a dart at a target blind. Not only will online accounting software make your life easier and save you time (the most precious commodity to any business owner), it will help you to track cash flow and simplify your finances, so you can optimise your businesses growth over time.
From tracking invoices and expenses, to bookkeeping and payroll (if required), good accounting software is like running a magic wand over your finances. But it’s important you choose not just good, but the right magic wand for your business needs.
Shopify stores range in size, industry, number of employees, what they sell, budget – so be sure to choose a solution that fits your business where it is now, as well as where it will grow to be in the future.
Popular online accounting software we’d recommend using with Shopify:
- Xero – not only popular with Shopify store owners but across a wide range of e-commerce industries and other small business types worldwide. Xero offers an end-to-end financial accounting solution that works hard for you – even while you sleep.
A dashboard you can customise
Detailed reporting – 65 different reports to be exact
Well-structured, dynamic payroll system
Option of tracking inventory
Automated bank reconciliation
Chart of Accounts
Invoicing and Estimates
Accounts Payable to facilitate all billing operations
Contact Management which can help you drive target marketing by identifying specific groups of customers
Quickbooks Online – also known as Intuit QuickBooks – is well-known for being the most advanced accounting solution for e-commerce and offline stores. It may be super simple to use, but it’s actually an incredibly intelligent business tool that lets you instantly see how your business is doing.
- Basic but informative dashboard interface
- A customer management system for saving and coordinating customer details
- Simple bank reconciliation
- A client portal so your customers can log-in and view their account information
- Invoicing and Estimates
- Wide range of customisable business reports
Why you should use an accounting connector
Most online business tools are designed to solve a specific problem, but aren’t designed to integrate with other tools. One solution is to manually transfer data using spreadsheets and a lot of manpower. The alternative is to invest in ‘connectors’ or integration apps that do the job seamlessly for you.
A2X for Shopify is one of those apps. It automatically connects data between Shopify and Xero or Quickbooks, so you have the information on hand to better manage and understand your business. It’ll save you a lot of time too.
Here’s what it does:
· Makes scaling easier – as your Shopify store grows, the number of orders you import into your accounting software can quickly become overwhelming, making reconciling to your bank account a nightmare. While you can still see individual orders, with A2X you’ll also get summarised statements tied to each pay-out summary, for fast and penny-perfect reconciliation each month.
· Saves hours of reconciling each month – if you’re still manually reconciling your Shopify pay-outs, then pulling out your fee, refund or adjustment data, here’s the good news. A2X can do this for you automatically. With a few clicks, you do away with hours of work each month.
· Delivers more accurate bookkeeping – A2X brings through your Shopify store data and allocates it in your accounting system. That means you always have reliable, accurate financial data at your fingertips – no more guesswork.
Tax software for Shopify sellers
So, you’ve sorted your accounting by investing in a dedicated piece of cloud-based accounting software, like Xero or Quickbooks. And you’ve integrated A2X, so you have useable sales data and reporting and can make better, more informed business decisions. Next step to think about: sales tax.
With TaxJar’s simple sales tax app, you’ll always know how much you owe in sales tax. It takes care of all the tricky calculations involved with sales tax – goodbye manual spreadsheets!
When linked with Xero, it works by importing your order history, pulling out the sales tax collected and calculating how much sales tax you owe to each state, when and how often.
- Calculate what you owe in sales tax in each state based on nexus.
TaxJar can help you figure out whether you’ve been paying the right amount of sales tax.
- Give you a comparison of what sales tax you’ve collected versus what you should have collected. If you’re not collecting at all, TaxJar will give you an approximate liability figure.
- Break down sales tax for states requiring it.
- Update your sales tax reports every day, so you can stay on top of collecting your sales tax and filing your returns on time.
Shopify’s profit margin calculator
Deciding on what price to sell your product/s for isn’t simply a matter of plucking a number out of thin air. But it can be simple using Shopify’s profit margin calculator to find the right price for your product (the right price being so you make a profit).
Before you can develop an effective pricing strategy for your business, you need to figure out what your mark-ups and profit margins are. Shopify’s profit margin calculator is easy to use – simply enter the gross cost of each item and what percentage in profit you’d like to make on each sale – and hit calculate.
The tool will do all the work for you, running your numbers through its profit margin formula to find you the price you should be charging your customers.
Why work with an e-commerce specialist accountant
Deciding to work with an accountant is a business decision, and one you’ll benefit from instantly – don’t leave it until you’re losing money. Yes, most small business owners attempt to do their own accounting and bookkeeping, but let’s be honest – managing finances is not the reason you went into business.
Just like business tools, it’s important to consider which accountant is best to work with. While there are lots of accountants who are familiar with Xero and Quickbooks, not as many are equipped with the skills and knowledge to work with Shopify store owners or e-commerce businesses in general.
There’s huge benefit in using a specialist accountant who is highly experienced in e-commerce accounting and understands the complexities involved with selling through Shopify.
- Catching Clouds: accounting services for online businesses – “We speak e-commerce.”
- Muse Minded: expert bookkeeping and income tax
- Bookskeep: confident e-commerce bookkeeping
Find an accounting expert who is confident using your accounting software as well as any connector apps. They also need to be well-versed in any relevant sale tax legislation, particularly for those with customers in the United States. E-commerce specialist accountants will not only help you tidy up your books and make sure you’re paying the right amount of tax, they’ll also be able to help you improve your business processes so you can work more effectively, and their advice will be invaluable when making major business decisions.
Understanding your taxes
One challenge that most Shopify merchants come across is understanding their tax obligations in the regions they sell into.
Our regionally specific tax guides below should help you understand what you might owe, and how you should handle your taxes across the world:
- USA & Canada ecommerce tax guide
- UK & EU ecommerce tax guide
- Australian ecommerce tax guide
- Asian ecommerce tax guide (Hong Kong)
Set up shop the right way
Shopify has over 1000 different apps to help assist e-commerce stores, with everything from accounting and inventory, to shipping and reporting. We love a good app just as much as the next person (who wouldn’t want to make life easier if they could, right?!) but too much choice can be a bad thing.
Finding the right mix of apps and integrations to automate back-office admin tasks is just as beneficial for your customers as it is for your business operations. Ensuring you have an accurate and reliable back-office set-up means you can spend more time on customer service, your customers can pay you easily, and you have peace of mind knowing you’re adhering to your financial obligations as an e-commerce owner.
By pulling together and automating all aspects of your accounting, and working with a specialist accountant, you’re setting your business up with the right foundations and giving yourself the best chance to grow right from the beginning. For you to remain in business, profitability and growth are crucial. And without the right systems in place to support that profitability and growth, the reality is you won’t be in business for long.
The best business tools for Shopify Accounting:
- Xero or QuickBooks (accounting software)
- A2X for Shopify (accounting connector)
- TaxJar (sales tax app – connects with Xero only)
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