What Are The Most Common Ecommerce Bookkeeping Mistakes That Cost Online Stores Thousands? (And How to Fix Them)

Making money running your own online store may seem easy. But behind each profitable e-commerce business is also a solid financial tracking system. Many e-commerce businesses make costly bookkeeping mistakes, some of which don’t show up on their profit-and-loss statements immediately but will eventually drain their profit margins or become long-term financial risks.

Small ecommerce bookkeeping mistakes can be very expensive. For example, if you are unable to track your expenses accurately, it could cost you thousands of dollars. In this blog post we will review the most common ecommerce bookkeeping mistakes and also go into detail about why these mistakes occur and what you can do to correct them.

Why is Bookkeeping More Complex for E-commerce Businesses?

E-commerce bookkeeping is much more difficult to complete than traditional accounting due to the following:

• Multiple sales channels for products (i.e., Amazon, Shopify, eBay, etc.)
• Different payment gateways with different fees associated with the use of each gateway
• Complexities related to inventory management
• International tax laws and foreign currency exchange
• High volume of transactions and frequent returns/refunds

Each of these factors typically results in bookkeeping issues for e-commerce businesses. These challenges usually arise from how systems have been set up by the business.

10 Common Ecommerce Bookkeeping Mistakes and How to Fix Them?

Mixing Personal and Business Finances

Error: Combining personal and business transactions into one bank account.

Correction: Create a separate business account so you can keep track of your books and avoid some of the most common accounting mistakes online store owners make with their accounting.

Ignoring Your Inventory Management

Error: The failure to correctly document how much product you have on hand makes it difficult to accurately report your profits.

Correction: Invest in inventory management software and use the first-in, first-out (FIFO) accounting method.

Not Performing Account Reconciliations

Error: If you do not reconcile your accounts on a regular basis, you may miss discrepancies.

Correction: Make sure to perform account reconciliations at least once a month to avoid bookkeeping errors in e-commerce businesses.

Failure in Calculations of Sales Tax and VAT

Fault: Incorrectly applying tax rates to areas outside your own area (or even within it).

Solution: Automated tools for taxes help you avoid expensive errors in e-commerce accounting.

Overlooking Payment Gateway Fees

Fault: Transaction fees (i.e., Stripe/PayPal) are not tracked by the platform.

Solution: Tracking all fees will give you a true picture of what your net is.

Inadequate Expense Categorization

Fault: Misclassification of expenses leads to false reporting.

Solution: Clearly categorize all expenses i.e. marketing, shipping, software, etc.

Not Monitoring and Recording Refunds/Returns

Error: Failure to account for returns inflates revenue.

Correction: Record all refunds immediately to help e-commerce financial mistakes to avoid.

Relying Only on Spreadsheets

Incorrect Error: Using spreadsheets to manually track financial information can increase the risk of accounting errors.

Corrected: Use cloud-based accounting systems to reduce the common bookkeeping mistakes in e-commerce.

Lack of Financial Reporting 

Error: Not analyzing P/L statements on a regular basis.

Solution: Create a monthly report that will provide you with your financial status.

DIY Bookkeeping Without Expertise 

Error: Your lack of knowledge on how to handle your finances is creating accounting errors for e-commerce.

Solution: Hire an expert bookkeeper or outsource your bookkeeping.

Warning Signs Your Ecommerce Bookkeeping Needs Immediate Attention

There are a few key warning signs of e-commerce accounting problems and solutions that you as an e-commerce seller should watch out for:

• Cash flow problems on a frequent basis
• Financial records missing or inconsistent
• Accounts unreconciled
• Tax penalty assessments unexpectedly
• Ability to track profit difficulties

The e-commerce accounting issues listed above are all clear indications your e-commerce business needs to take immediate action.

Tools to Prevent E-commerce Bookkeeping Mistakes

Utilizing the proper tools is one of the best ways to help prevent bookkeeping mistakes ecommerce sellers make:

• Cloud accounting software (QuickBooks, Xero, etc.)
• Inventory management systems
• Automated tax calculations
• Reconciliation of payment software
• Integration with e-commerce platforms (Shopify, Amazon, etc.)

The use of cloud-based e-commerce accounting software and other tools will assist in streamlining many of the processes and minimizing financial mistakes e-commerce start-ups make and e-commerce businesses can experience.

Benefits of E-commerce Bookkeeping Correctly Done 

Avoiding bookkeeping mistakes that hurt e-commerce profits will provide many benefits to you.

• Better managing cash flow.
• Tracking your profit more accurately.
• Easier compliance with taxes.
• Making better-informed business decisions.
• Being prepared to scale and grow your business.

Accurate financial records will help maintain your business’s overall financial health and will be ready for an audit.

Benefits of Outsourcing Your Ecommerce Bookkeeping (Common Mistakes Made by Beginners)

Many e-commerce businesses are now using outsourcing as a way to correct e-commerce accounting mistakes beginners make.

Key benefits include the following:

• Expert knowledge and resources are available.
• Reducing errors and compliance issues.
• Saving time.
• More cost-effective than employing a team in-house.

Using professional services to avoid common e-commerce bookkeeping mistakes and have accurate and organized financial information.

Conclusion

Managing your e-commerce finances successfully is about more than making sales. It is about doing the bookkeeping part of your business correctly. The cost of some of the common e-commerce bookkeeping mistakes can easily add up to $1,000 per month and potentially cause your e-commerce business to fail in the future.

Identifying the most common bookkeeping mistakes e-commerce businesses make and using the correct tools and strategies to eliminate those mistakes will provide your e-commerce business with the ability to accurately record all of its financial transactions, improve profitability and make better financial decisions.

Ecommerce Bookkeeping FAQs

Which type of accounting (bookkeeping) is best for an e-commerce business?

Generally speaking, accrual accounting is the preferred type of accounting because it provides a true picture of revenue and expenses for many types of businesses (including those that sell products online).

Why is it so hard to do e-commerce bookkeeping? 

E-commerce bookkeeping is difficult to do because there are many different areas to track (many different platforms); many different financial transactions occur every day (high volume of transactions); there are many different taxes to pay (taxes can vary by state and federal governments); and inventory levels must be tracked, which leads to many potential bookkeeping errors if not monitored closely.

How often should an e-commerce business reconcile their accounts?

It is recommended that an e-commerce business reconcile their accounts at least once per week or once per month to reduce e-commerce accounting errors.

Do e-commerce businesses need to use professional bookkeeping services?

Yes, as the size of an e-commerce business increases, so does the complexity of its financial transactions. Professional e-commerce bookkeepers can assist in preventing the e-commerce accounting errors made by online store owners and can also help ensure that an e-commerce business remains compliant with all applicable laws.

What tools help manage e-commerce bookkeeping efficiently?

There are several types of tools that can assist an e-commerce business in managing its e-commerce bookkeeping, including cloud accounting software, inventory tools and tax automation platforms.