Reduce Your Ecommerce Accounting Costs: Pro Tips for Sellers

How to save on your eCommerce accounting

Good eCommerce accounting is not cheap, but a big part of your bill is within your control. The more complex and disorganized your finances are, the longer your accountant has to spend on them, and the more it costs you. Simplify the inputs and your monthly fee comes down.

Here are the eight factors that affect how much you pay for eCommerce accounting, and what to do about each one:

1. The number of bank accounts your eCommerce business has
2. The number of FinTech accounts you have
3. The number of ecom sales channels you have
4. Mixing personal and business transactions
5. Manual vs automated record keeping and bookkeeping
6. Once-off vs ongoing accounting and bookkeeping costs
7. Regular financial reviews of your books
8. The complexity of your e-commerce business

1. The number of bank accounts affects bookkeeping costs

The problem. Each bank account an ecom business has adds to the complexity of bookkeeping. More accounts mean more statements to reconcile and more transactions to track, which increases the workload for the accountants, and in turn increases the costs.

The solution. Where possible, consolidate your accounts. Fewer bank accounts mean fewer bookkeeping fees. Here are a couple of specific examples:

• Limit the number of accounts you have that receive money. Ideally you want all the payments and settlements from Amazon, Shopify, eBay, Walmart and WooCommerce to be deposited in the same account. This reduces the need to transfer money between accounts, which reduces the number of transactions.
• Reduce the number of credit cards you have. Credit cards are often an easy source of funds to start an eCommerce business, especially in the beginning where banks are happy to provide credit in your personal capacity but not in the name of your business. The reality is that having 10 credit cards is not only expensive when it comes to bank charges and interest payments, but with each one you can add to your monthly eCommerce accounting bill. This is typically between $20 and $50 depending on the ecom bookkeeper you use. Once your business reaches critical mass, reducing the number of credit cards by consolidating the debt into a business loan can significantly reduce your costs, both from an accounting and a debt servicing point of view.
• Maximize your credit card cashbacks. Not all credit cards are created equal. Some offer great cashback benefits which can be helpful. Ecommerce businesses spend a lot of money on advertising, apps and other online services. By getting a credit card with really good cashback rewards and putting as many expenses as possible through the card, you get more cash back. So instead of having many credit cards for transactions, rather put through as many transactions as possible through only one credit card account.

2. The number of FinTech accounts affects your fees

The problem. Fintech solutions like PayPal, Stripe or Square offer streamlined online payment processing, financial management and other services that are essential for e-commerce businesses. However, using multiple fintech accounts can inadvertently lead to increased costs and complexity, particularly in terms of eCommerce accounting fees.

One significant challenge arises from the multi-currency capabilities these fintech solutions often provide. While handling multiple currencies is beneficial for reaching a global market, it also complicates financial management. Each currency transaction might involve conversion fees, fluctuating exchange rates and additional accounting complexities. That means for each transaction in a different currency, there could be additional costs associated with converting and reconciling those amounts for accounting purposes.

Managing multiple accounts also demands more comprehensive accounting effort to track and reconcile transactions across different platforms and currencies, leading to higher accounting fees. This complexity increases the direct costs related to transaction processing and demands more time and resources for financial oversight and reconciliation, adding to the overall expenses of running an e-commerce business.

The solution.

• Reduce the number of FinTech accounts. We have seen sellers who have multiple FinTech accounts. They receive payments in PayPal, Stripe, Square and more, and then raise their concerns when the accountant has to increase the monthly bookkeeping fees. The reality is that each fintech account operates like a bank account. Where possible, reduce the number of accounts you have to reduce your accounting fees.
• Reduce the number of foreign currencies you keep. Where possible, try to limit the number of foreign currencies you make use of. Many sellers do not realize it, but each currency you receive payment in creates a "bank account" for that currency with your FinTech partner. So if you receive payment in 5 currencies, it means you effectively have 5 bank accounts. Try to limit the currencies as much as possible and only keep the currency that you would actually use for making payments too. For example, if you have a supplier in Mexico it makes sense to keep Mexican Pesos as a currency, but if not, try to avoid receiving payments in other foreign currencies.

3. The number of sales channels impacts ecom accounting fees

The problem. It often happens that a client might do 50% of their sales on one sales channel (for example Amazon), 30% on a secondary channel (for example Shopify) and 20% spread between several other smaller sales channels. While multiple sales channels can increase revenue, they also add to the accounting burden, especially if they do not have a sufficient volume of transactions to justify the cost.

The solution. If you have smaller sales channels that you have sufficiently tested, and they just do not bring in enough revenue to justify the cost of having them, then it might be best to cut that sales channel. What is the point of having a sales channel that produces $100 in sales every month but costs you $105 in additional apps and accounting fees? Each sales channel should be worth the cost of managing it.

4. Mixing personal and business transactions affects what your accountant charges you

The problem. Mixing personal and business transactions complicates accounting and increases costs. When personal and business expenses are mixed, it becomes challenging to distinguish between the two. This lack of clarity can lead to inaccuracies in financial records, making it difficult to understand the true financial health of the business. Separating personal and business transactions after they have been mixed also requires additional time and effort. This process often involves sifting through bank statements and receipts to categorize each transaction correctly, which can be time-consuming and increase your ecommerce bookkeeping fees.

The solution. Keeping these transactions separate is essential for clear, efficient financial tracking and simpler, more cost-effective ecom accounting. When you start your business you might be forced to open a personal account that you use for business purposes. That is ok, so long as you do not mix business and personal transactions.

It is better to have a dedicated "personal account" that you use for business purposes only, than to have several accounts where you mix and match personal and business transactions. The longer your ecommerce accountant has to take to unravel personal and business transactions, the more it will cost you.

5. Technology can reduce your bookkeeping fees

The problem. Ever heard the term shoe box accounting? "Shoebox accounting" refers to a somewhat disorganized method of managing financial records, where receipts, invoices and other financial documents are haphazardly stored in a box (often literally a shoebox) or in an unsorted pile. Most ecommerce sellers do not keep their receipts in a shoe box these days, however the principle is that the more disorganized your financial records are, the longer it will take to unravel them, which will increase the cost.

The solution. Leveraging technology is crucial in modern e-commerce accounting. Accounting software that integrates seamlessly with your e-commerce platforms can automate many aspects of bookkeeping, reducing the time and effort required for manual data entry. This not only improves accuracy but also translates into lower accounting fees. At CronosNow we love using apps like A2X Accounting and Dext Prepare, which reduce errors, improve performance and automate a lot of the accounting.

6. Ongoing accounting is cheaper than catchup accounting

The problem. It happens every now and then that an ecommerce seller reaches out to us and asks for a quote on accounting. When asked if their financial records are up to date, the response is "I have not done any accounting for several years now. I got a notice from the IRS the other day, can you help me sort it out?" The brutal truth is that once-off catchup accounting takes a lot of effort and can be very costly, since it can take several weeks to understand and unravel everything.

The solution. Frequent reconciliation of accounts helps maintain up-to-date and accurate financial records. This proactive approach is far more cost-effective than the intensive work required to catch up on weeks or months of unreconciled transactions. Regular reconciliation streamlines month-end accounting processes, saving time and money, but more importantly it provides you with accurate data that you can use to make financial decisions about your business.

7. Regular financial reviews can help you be more profitable

The problem. Many sellers do not succeed, not because they do not make enough sales, but because they do not make enough profit. Since they do not regularly review their business financials, they do not know where they are losing money because they never really take the time to understand their business.

The solution. While hiring an accountant might seem like an added expense, engaging one who specializes in e-commerce can be a cost-saving move in the long run. Their expertise in navigating the unique challenges of e-commerce accounting leads to more efficient management of your financial records, potentially reducing overall accounting costs.

Conducting regular financial reviews is also an effective strategy for identifying inefficiencies and potential cost-saving opportunities in your accounting processes. These reviews ensure that your financial practices evolve with your business needs, helping to maintain a cost-effective accounting system.

8. The more complex your operations, the more you will pay

The problem. Consider the following two sellers.

Whose eCommerce accounting will cost more?

• Bob’s accounting costs (seller 1) will be significantly less than Mary’s, since it is less complex.
• Since there is a large volume of similar transactions, we can automate the accounting using apps like A2X Accounting. In Mary’s case (seller 2), although she does far fewer transactions than Bob, she has 50 times more SKUs. This means her ecommerce accountant will have to do a lot more work to calculate the value of inventory.
• Mary will also have to pay significantly more for apps than Bob to get the sales data out of all her sales channels.

The solution.

• Focus on the most profitable products. By focusing on the most profitable products, Mary has an opportunity to reduce her number of SKUs. This means she will be able to purchase products at greater volume with a greater discount. Typically, she should also be able to save more on inbound shipping, since the cost per unit decreases on sea freight dramatically when you order in bulk. This is often easier said than done, especially when starting an ecom business, since you do not have enough data yet to know which will be your best sellers, however it is something you should aim to achieve as soon as possible.
• Only keep profitable sales channels. By reducing the number of sales channels to the most profitable, Mary should be able to focus her marketing budget more wisely. This in turn should allow her the ability to increase the profitability of that channel, since she will achieve critical mass sooner.

Quick reference: what to avoid and apply

Conclusion

Effective financial management is critical for e-commerce success. By understanding the factors that impact accounting costs and embracing strategies such as technology adoption, regular reconciliation, hiring specialized accountants and conducting financial reviews, e-commerce sellers can achieve substantial savings in bookkeeping and accounting fees. Those savings can then be redirected towards growth and expansion initiatives, fueling the continued success of the business.