Ecommerce is no longer solely the domain of brick-and-mortar stores looking to expand their market reach or hobbyists looking for a platform to sell their creations. Instead, ecommerce is truly the future of retail. In 2017, ecommerce represented 49% of the total growth in retail sales, and—with the decline of shopping malls and other brick-and-mortar establishments—many experts predict ecommerce will only continue to grow.
There are many benefits to owning an ecommerce business. Ecommerce retailers enjoy nearly limitless options when it comes to location, meaning you can enjoy the benefits of owning your own store without being tied to a specific city, state, or even country. This, combined with low overhead costs and limited risk, makes the ecommerce industry attractive for many who want to start a retail business.
Leveraging the right software to run your ecommerce business is key to enjoying the flexibility and profitability possible in this industry. One of the key pieces of software you need to consider for your ecommerce business is your accounting solution. Not all business accounting softwares are created equal, and with the number of unique challenges faced by ecommerce retailers, you need to make sure you choose the best accounting software for your ecommerce business.
What to Consider When Choosing Accounting Software for Ecommerce Businesses
There are several challenges ecommerce business owners must address early on, and the solutions to these challenges directly impact what is the best accounting software for your ecommerce business.
Unlike with a brick-and-mortar store, inventory for ecommerce sellers is often stored off-site, in warehouses or distribution centers. Further complicating inventory management is multi-channel sales—your inventory management solution must “talk” to all your sales channels in order to prevent out of stock or other inventory issues.
You will need to use a third-party application to manage your inventory effectively, especially if you are leveraging multiple channels for sales. An inventory management subscription will cost you some money, but it will save you hours of time and costly inventory management errors. Ideally, your inventory management solution should integrate with your ecommerce accounting software, either directly or using an application that connects the two.
One of the biggest benefits of ecommerce is you can sell your products across the country, or even around the world. This benefit also causes one of the biggest challenges ecommerce sellers face—sales tax compliance. Recent court decisions have created more confusion around sales tax compliance, and this confusion is likely to get worse before the tricky subject of sales tax compliance is definitively resolved.
Although most accounting programs include a sales tax module, these modules only calculate the sales tax due based on information entered by the user. They do not manage sales tax compliance or filing the sales tax returns.
Sales tax automation programs alleviate the hassle of managing the 10,000+ sales tax jurisdictions in the United States, saving online retailers countless hours and dollars. Avalara and TaxJar are two great options to consider for sales tax automation. They connect directly to your online selling platform and—for a small fee each month—will file and remit all necessary sales tax returns and payments due for you.
Online Selling Platforms
If you are going to spend hours researching anything in your ecommerce business, spend those hours researching the various online selling platforms available.
Are you handcrafting one-of-a-kind products well-suited for Etsy, or are you having a product mass produced? Do you want to leverage the power and reach of Amazon or eBay, or would you prefer to keep your ecommerce business on your own website and use Shopify to power your sales? Would you like to have the best of all worlds and sell your products across multiple channels?
Sometimes starting small with one selling platform is the best bet. But, if you have a truly innovative product, you might want to launch your business across multiple sales channels immediately. Giving considerable thought to your online selling platforms at the beginning will save you time, money, and stress.
All the pieces of your ecommerce business—from inventory management to sales tax compliance to your selling platforms—must work together seamlessly. Your ecommerce accounting software becomes the glue that holds all these pieces together. Without a powerful accounting solution, determining the health and profitability of your ecommerce business is not possible.
Working With a Bookkeeper
Before we look at the best accounting software for ecommerce businesses, though, there is one more vital factor to consider. Engaging a bookkeeper who understands ecommerce in general and the tools you use in particular is critical to the success of your ecommerce business.
Most online accounting and retail solutions tout ease of integration, but in reality integration is rarely as simple as clicking a few buttons. Improper integration will completely wreck your accounting. A bookkeeper who specializes in ecommerce can help you integrate your solutions properly from the very start, and they will monitor the integration on an ongoing basis to ensure nothing goes awry.
The Best Accounting Software for Ecommerce Businesses
No doubt about it, you want to leverage the power and flexibility of a cloud-based accounting software for your ecommerce business. The benefits of cloud-based solutions far outweigh the costs. With a cloud-based accounting software, you get:
- Real-time access for multiple users. This is critical, especially if you are working with an ecommerce bookkeeper in a different part of the country.
- Easy integration. While setting up integrations between your various business solutions is no small feat, after the initial setup maintaining those integrations is easy if you use a cloud-based accounting software.
- Automatic software updates. No one has the time to spend hours updating their accounting software, least of all busy ecommerce business owners. With cloud-based accounting software, updates happen behind the scenes on a regular basis.
Our #1 Pick: QuickBooks Online
With more than 2 million users worldwide plus an 80%-plus market share, QuickBooks Online is the small business accounting software of choice. It is also our pick for the best accounting software for ecommerce businesses. Supported by thousands of accountants and bookkeepers, choosing QuickBooks Online as your ecommerce accounting software guarantees you will be able to find support for your business.
QuickBooks Online also integrates directly with dozens of apps commonly used by ecommerce businesses. In the cases where a direct integration is not available, you can usually find an app like Zapier that will help you connect the various pieces of your ecommerce business to your accounting software.
Runner Up: Xero
Xero doesn’t have the market share and reach of QuickBooks Online in the U.S., but it is rapidly gaining momentum. A number of accountants and bookkeepers are Xero partners, so finding support is relatively easy. Business owners love Xero for its ease of use and lack of accounting jargon.
What we really like about Xero is its open API. As the ecommerce industry continues to gain momentum, the development of new and better solutions for inventory management, sales tax compliance, and selling will increase. An open API ensures Xero users will be able to integrate these new solutions quickly.
Honorable Mention: GoDaddy Bookkeeping
GoDaddy Bookkeeping syncs directly to Amazon, Etsy, and eBay. This direct sync makes it a very attractive solution to many ecommerce business owners.
Although GoDaddy Bookkeeping is a good solution for smaller ecommerce businesses, it’s not well-suited to larger enterprises. Because there is no balance sheet feature in GoDaddy, your inventory management solution will not sync to it any meaningful way. Also, GoDaddy Bookkeeping doesn’t provide a separate bank reconciliation feature. This leaves your bookkeeping open to errors which are usually caught during month-end and year-end reviews.
Choosing the Right Accounting Software for Your Ecommerce Business
There’s more to choosing the best accounting software for your ecommerce business than first meets the eye. You must take into account the particular challenges faced by your industry, determine the solutions for these challenges that best fit your business model, and then choose the accounting software that brings all the various pieces of your business’s puzzle together as seamlessly as possible.
Although this may seem daunting, you don’t have to go it alone. Because ecommerce is such a rapidly growing industry, many accountants and bookkeepers are specializing in serving ecommerce business owners just like you. Forming a partnership with one of these accountants or bookkeepers will position you well for success. Even beyond the typical functions of software integration and recordkeeping, your ecommerce accountant or bookkeeper will be able to help you navigate the uncertain waters of sales tax compliance.
Now that you know what to consider in choosing the best accounting software for your ecommerce business, you can easily make the best choice for your business’s needs. Here’s to getting back to enjoying the benefits of owning an ecommerce business!
Billie Anne Grigg
Billie Anne Grigg is a contributing writer for Fundera.
Billie Anne has been a bookkeeper since before the turn of the century. She is a QuickBooks Online ProAdvisor, LivePlan Expert Advisor, FreshBooks Certified Beancounter, and a Mastery Level Certified Profit First Professional. She is also a guide for the Profit First Professionals organization.
Billie Anne started Pocket Protector Bookkeeping in 2012 to provide an excellent virtual bookkeeping and managerial accounting solution for small businesses that cannot yet justify employing a full-time, in-house bookkeeping staff.