Online sellers want to know: What is the best accounting software for my online store? What you are really asking: What accounting software will totally automate my bookkeeping for my online store so I don’t have to do much or become an accountant?
The answer to that question is: None of them! There is no magic wand available yet that will totally automate accounting and bookkeeping for you, unfortunately. And the analytics and reporting inside your sales channel are absolutely not going to provide tax-ready books for you.
Face it, with no one app to rule them all, you’ll have to master a system of apps, tech and human hands-on to cover it.
The system you need is centered on accounting software as the foundation. Other apps and technology are used to connect your accounting software with your online store’s sales receipts and payments, manage inventory and sales taxes, and perhaps apps to automate the various other apps.
And no matter how many apps you cobble together, you still need to know something about accounting to make it all actually bookkeep accurately for you. The non-accounting apps need to be expertly mapped to the right accounts or you will have a mess on your hands very quickly. And you will need bookkeeping knowledge to sort out any problems you will still encounter, since this system isn’t ever going to be one hundred percent fool-proof and automated.
So back to the original question, but now with better focus. What accounting software is the best choice for the base to build your system on?
Pretty much any basic accounting app will work just fine. Strangely enough, you actually need to ignore the ecommerce aspect when making this choice (explained below). Your accounting software will be used mainly as a repository of ecommerce summaries and not for recording detailed transactions or tracking individual sales or products.
So your accounting software doesn’t need a lot of specialized features or specifics to ecommerce. The specialized pieces get done outside your accounting software. Pick one that you find easy to use and you can afford the monthly subscription. These factors are different for everyone. And can change as your business grows.
The best one in this case is the best one for you. Yeah, I know, kind of a cliché. But read on for more guidance.
At a minimum, look for accounting software that:
- Automates bank feeds and connects to your specific banks and credit cards
- Does invoices, purchase orders and bills that you understand and look good to represent your business.
- Produces at a minimum, the basic 3 financial statements, balance sheet, income statement and statement of cash flows.
- Can upload and download csv, excel, and maybe google sheets files.
- Does manual journal entries that you can understand.
- Can set up inventory as one or more summary current asset accounts. Does not need/should not need to do detailed inventory tracking of individual items and SKUs.
This list is the very baseline of accounting and is covered by the major accounting softwares out there like QuickBooks Online, Xero and many others like Sage, Zoho Books and Wave.
How to decide what subscription level you need:
In addition to choosing an app, you also will likely have to choose a subscription level. Surprisingly, even though ecommerce accounting is more complex than for most other industries, the simpler, less costly subscriptions in apps like QuickBooks or Xero can work just fine for ecommerce.
The features in higher-level subscriptions may seem like what you need, but most are not necessarily better-built to work for ecommerce, so we don’t use them.
The main thing to watch with the lower-priced subscription levels, like QuickBooks Self-Employed, or less complex apps and even free apps:
They often don’t include tracking assets so they can’t produce a balance sheet. They might only track income and do invoicing. Assets accounts are on a balance sheet, You’ll need current asset accounts to hold ecommerce inventory summaries. (I will explain the reason for doing inventory this way in a moment.)
What you don’t need for ecommerce (or can’t even get) in accounting software:
Inventory with detailed product tracking – Yes, you are a retail business with inventory. But none of the accounting apps were built to handle ecommerce inventory – products that are paid for when ordered, or thousands of transactions and items and SKUs. Most track inventory based on invoicing customers, which you don’t generally do. For example, you don’t need to go up to the level of QuickBooks Plus subscription just because it has inventory. Inventory features in your accounting software is not any good at helping you manage stock levels on multiple sales channels.
Pick a lower-priced subscription without inventory and put the money saved towards a good inventory management app. The inventory management app needs to be able to integrate both with your specific platforms and your chosen accounting software. So look for an inventory app along with choosing your accounting software. And keep in mind, your inventory tracking needs may change with the growth of your store. Inventory apps are priced based on monthly transaction levels and number of sales platforms you need to connect.
Direct integrations – You also don’t need to find an accounting software that has available direct integrations with your specific sales platform(s) or payment gateways. This is because a direct connection will upload thousands of individual transactions, which will overload and unnecessarily slow down your software. Also even though you may be able to connect something like PayPal as a bank account, you will be duplicating your transactions and have a mess to match it all up. So stay out of trouble and don’t connect it.
There are a fair number of these integrations advertised and most can be found inside your accounting software as compatible apps or plugins. General advice out there is to look for an accounting software that has a lot of ecommerce integrations available, specifically it has to have the ones for your sales and payment channels. I recommend not bothering much with this criteria to choose your accounting software.
Instead of uploading individual transactions, ecommerce bookkeeping for the most part uses summaries inside the accounting files. We leave the detailed analytics of items and customers to your sales platform. The summary inventory is handled in accounts called current asset accounts. Most accounting software has asset accounts, but some do not. Be sure you know which ones do asset accounts, which I described as being on the balance sheet previously.
These summaries are either added to your books via manual journal entries, or another third-party app that is a connection between your sales/payment channels and your accounting software (not a direct integration). So the connector app is the one you have to make sure handles your chosen accounting software and the ecommerce channels you use, including multiple channels.
What apps do you use to automate uploading summaries? Look for apps that may be called accounting tools like A2X, Bookkeep.com, Webgility, Dext Commerce. These are the apps that need to be mapped to the correct accounts in your accounting software to work. And remember, that requires some level of accounting knowledge.
Sales Tax for transactions in multiple states also is not handled well by accounting software. Mainly because you can’t book and invoice your sales inside the software, this is handled on your sales platform. Sales platforms that are marketplaces like Etsy and Amazon or Walmart, will also handle remitting sales takes, which again is over multiple states for ecommerce. For other platforms like Shopify, you will need an app for that such as Avalera or Tax Jar. Which also require some specialized knowledge to map correctly to your accounting software.
Learning enough bookkeeping to make this all work:
Does accounting software teach you bookkeeping? This is the human hands-on part of your system. The big popular brands provide education, but they focus on teaching you how to navigate their software. You get a smattering of bookkeeping in their tutorials, but mostly a lot of accounting jargon you don’t understand.
Their big secret: You do have to learn bookkeeping outside the software in order to use it well. You also need a certain level of financial literacy to help you in business decisions and using your financial statements. None of which you will get by learning an accounting software.
You can try to hack this piece by watching a lot of free videos on YouTube or take a low-cost bookkeeping course. But ecommerce accounting is more complicated than basic bookkeeping. There are videos and courses on ecommerce accounting available. But they assume you have a basic understanding of bookkeeping methods to build on.
So, to become competent to do your own ecommerce books, along with setting up your tech stack, complete a good all-around bookkeeping course. AND THEN complete a course in ecommerce bookkeeping. Bookkeeping courses can be expensive, and difficult, not to mention boring. But so is falling down with your bookkeeping.
So don’t spend your time endlessly searching for accounting software that will take it all away for you like a good hot bath. Get to work on building the entire system you need.
Wait, is there any alternative to this multi-part complex system?
Yes! You can outsource to a virtual bookkeeping service! Next question, how do you find a bookkeeping service that is best for ecommerce? Ecommerce bookkeeping uses specialized methods, so you need to look for someone who understands that. Go to https://www.5genbooks.com to learn more about ecommerce accounting.
Why a general bookkeeper may not be your best choice:
Many general bookeepers, and even CPA’s, will not even take on an ecommerce business. Those that do may not be experienced with sales platforms and payment gateways. Or they may have booked a few stripe payments for a client and think that it is easy because you just set up integrations with the platforms. The mistakes they make may cost you big in the end. So go to https://www.5genbooks.com to hire an expert ecommerce bookkeeping service.
One thing that makes it difficult to shop for a bookkeeper:
The bookkeeping industry generally doesn’t disclose pricing upfront. You have to fill out a form, get on a call and then wait for a proposal that finally has – THE PRICE. The time involved with this process means you can’t do much comparison shopping.
With 5-Gen Books, you can get an upfront price estimate (with some limitations) before you take the step to book a call. Go to https://www.5genbooks.com/shop to get your free estimate today!