If you’re selling on Shopify, you aren’t alone. It’s one of the most popular hosted ecommerce platforms out there because it allows you to quickly, easily, and inexpensively set up your own online store.
But although sales and marketing advice is plentiful wherever you look, the boring accounting details are woefully overlooked.
Here are 5 reasons why you should be paying more attention to your Shopify accounting numbers.
1 - You need good numbers to make good decisions.
When new online retailers start selling online, they often rely on their shopping cart (i.e., Shopify) numbers to keep track of what’s going on in their business. As well they should! But sometimes they forget that their shopping cart is just one piece of the puzzle.
There are other factors you need to be watching to make sure that your company has sufficient cash flow and profit to keep your business afloat, such as:
- Product costs
- Capital expenses (i.e., computers)
- Merchant account fees
- Sales tax liabilities
- Advertising costs
- And on and on
A good accounting system is crucial for all successful ecommerce sellers, because without one, it’s difficult to make good business decisions.
2 - Your Shopify dashboard may not be accurate.
You know those pretty dashboards showing you all your sales by time, day, week, and month? Pretty great, right?
Well, at the time that I’m writing this article, I can tell you that your Shopify dashboard is likely completely inaccurate for you. Why? Because your dashboard includes voided and cancelled orders. Yikes.
So how do you know how much money you’ve actually made? Good question. It’s by tracking your information in an accounting system and reconciling your sales reports to what’s actually deposited into your bank, of course.
(As a side note, we’ve raised this as an issue to Shopify, and hopefully they’ll take a look at fixing their dashboard soon. It’s better to rely on a good accounting system to keep everything in check.)
3 - Your Shopify dashboard also can't tell you if you're profitable.
Shopify is all about the sales. It is amazing at tracking what was purchased, when the sale was made, to whom you sold, what their billing info is, where the product should be delivered, and how they paid. It will also give you lots of info about the credit card fees charged as part of the sale.
What Shopify doesn’t tell you is how much profit you made on each sale (or overall) because it doesn’t track your product costs. Without costs, you don’t know if you made any money… even before looking at any other overhead expenses.
4 - Monthly reports don’t line up with what’s deposited into your bank account.
Shopify provides a nice, comprehensive list of every order ever placed on its website (including cancelled orders), and that’s great, but if you’re like most ecommerce sellers, you offer multiple methods of payment to your customers (Shopify Payments, PayPal, Stripe, etc.).
This creates a lot of complexity and confusion not only for Shopify sellers but also for their accountants! It’s important to have a strong grasp of how to turn Shopify data into actual useful financial information.
5 - Cash flow is everything to an ecommerce business.
The biggest driver for Shopify sellers is their inventory, and purchasing inventory is a major cash suck. If you have too much inventory or inventory is moving too slowly, you may be short on cash that you need for other purposes. Too little inventory, and you may run out of stock and lose customers.
Shopify has some great analytics that will help you analyze your best sellers, your average sales, and other important metrics. However, it won’t tell you how much inventory you have left in stock, when you need to reorder, which product is most profitable, or even if you’re profitable overall. You still need a solid accounting system.
Please join Catching Clouds by registering for a free webinar on Friday, September 29th, “Shopify - Accounting Best Practices.” We’ll talk about all of these issues (and much more!) to help ecommerce sellers and their accountants navigate these tricky waters.