(and how to stay out of jail)
Owning a Shopify store can feel a bit daunting at times. You have a million things on your plate, and the last thing you want to spend precious mental energy on is… you guessed it… your accounting.
Here’s the thing though — having an accounting and bookkeeping system in place is the very foundation of your Shopify store. You do not want to build on shifting sands.
But fear not, entrepreneur, for every problem there’s a solution. Here are the 9 mistakes Shopify sellers make in their accounting so that you can avoid them altogether (and stay out of jail!).
Did you know that upwards of 30% of businesses fail because the owner runs out of money? And it’s not one big unforeseen expense that drives the business into the ground. Rather, it’s a slow sinking into the sands of debt and poor cash flow. This is a symptom of a bigger problem: a lack of a real accounting and bookkeeping system.
As a Shopify store owner, you may know exactly how much you have in your bank account. But if you don’t always have a finger on the pulse of what you owe, you’re setting your business up for disaster.
Unfortunately, there’s nothing within Shopify to help you keep tabs on this. But by having a basic accounting system in place, you can ensure you’re tracking the health of your business, and thus you’ll keep it on the road to success. Without a doubt, having an effective accounting/bookkeeping system in place is key to a successful Shopify store.
If you think it’s too soon for real accounting and bookkeeping tools for your ecommerce store, just remember what Benjamin Franklin famously said: “If you fail to plan, you plan to fail.” Make sure you’re building on a firm foundation, or you’ll find yourself in a sticky mess that no one can pull you out of.
Mistake #2 — You Go It Alone With Excel
Many pioneering Shopify store owners think Excel will suit their accounting needs. But as soon as they try to hand it over to an actual accountant, they’re hit with a sizeable bill. Why?
The entire basis of accounting is the following arithmetic calculation:
Assets = (Liabilities + Owners Equity)
Getting both sides of the equation to balance isn’t easy, and Excel does you no favors here. So while your CPA may be able to rescue you from drowning in your self-made Excel nightmare, it will likely cost you thousands each and every year.
When you consider that accounting requires a degree and certifications, it’s easy to see why this is territory left to the pros (who just so happen to be armed with sophisticated software to make it happen).
Make certain your tools are what your accountant and bookkeeper really need, and that your Shopify store is properly integrated. When they say they prefer certain tools of the trade, like Quickbooks for Shopify, trust them.
Mistake #3 — Leaving Sales Tax a Hazy Grey Area
It’s simple to launch a business in the US, but keeping it legal requires a few smart maneuvers. For instance, as a Shopify store owner, it’s required that you collect and remit sales tax. You’re even required to set up your sales tax rates as part of your Shopify store setup process, but your obligations do not end there.
Be sure that you’re maintaining accurate rates and the money you collect is actually going to the federal and state tax collectors.
Otherwise, you could be looking at prison time.
Mistake #4 — Manual Record Keeping
You may feel like you have it under control by manually tracking your Shopify sales and entering them into excel or your accounting software, one by one.
But what you don’t realize is that you’re slowly getting tangled in a web that’ll constrain you and keep you from actually growing your business. Talk about a handicap!
How many hours a day are you spending on manual entry that could be used to focus on growth? Rather than getting stuck performing menial tasks, the smart Shopify owner focuses on increasing sales and revenue.
(Psst… There’s an app for this! Flowify automates the record-keeping process so you can stay on the up-and-up)
Mistake #5 — Tracking Sales Individually
Who wants to get crushed under a giant truckload of data? Not us!
Although Shopify keeps hordes of individual transaction data for your store, there’s no need to overload your accountant with it. Likewise, QuickBooks Online is not a data dump center.
Trying to track sales individually (especially if you’re doing upwards of 100 sales per day) is simply absurd. And yet some Shopify store owners are doing exactly this, overwhelming themselves for no good reason.
Track sales in bulk and expedite your system. It’s the 21st century after all. If you’re unsure of how to do this, just keep reading. You’re in good hands.
Mistake #6 — Scrubbing the Deposit Details
It’s tempting to fall for the trap of labeling your Shopify deposits as simply “revenue.” But don’t do it.
Interposed with revenue are metrics that matter. For instance, knowing how refunds and discounts play into your income for the period can make or break a business.
It’s essential that you can see the difference between sales, processing fees, refunds, chargebacks and more as you review your business financials. Start labeling them separately.
Mistake #7 — Mixing Business and Personal Expenses
Mixing business and personal expenses is an easy mistake to make, but it’s the kind of mistake that can take you (and your house) down with it. Not good.
Don’t commingle these two expenses or you’ll open yourself up to legal action.
If you find yourself regularly using your business credit card for personal expenses and visa versa, put a stop to it immediately and seek assistance from your bookkeeper to set things straight.
It may be helpful moving forward to disconnect your personal cards from any business auto-pay and ensure your business and personal checks and cards are distinctly different in color and design.
Mistake #8 — Missing the Big Picture
If you don’t look at your business from an accounting/financial perspective, you’ll never see the full story, and you might as well be blindfolded.
Sad but true, many Shopify store owners only see the money coming in and fail to recognize or manage the money going out. Often they don’t realize they’re actually losing money.
Be certain you are managing your cash flow effectively and are using the proper accounting system so that you don’t wind up walking off a financial cliff. Ouch!
Mistake #9 — Poor Time Management / Wrong Priorities
It can feel like there’s no way of holding back the onslaught of demands as a Shopify store owner. There seems to be a thousand things that need your immediate attention.
But instead of letting the pressure crush you, set yourself up for success with a simple monthly accounting and bookkeeping checklist, like this one.
Now that you’ve had the full tour of the top 9 mistakes Shopify sellers make in their accounting, are you ready and willing to make necessary changes? Will you make the right choices to protect yourself and your ecommerce store from the pitfalls of business ownership?
Surely the twists and the turns of entrepreneurship are exciting, but they needn’t be overwhelming.
With Flowify, Shopify store owners can completely automate their accounting integration with Quickbooks. It couldn’t be easier to track Shopify sales, inventory, refunds, processing fees, bank deposits, and more.
Get started today and see how a support team of accountants and bookkeepers can help you to better manage your Shopify store accounting. Think of us as your QuickBooks-Shopify connection.