Accounts Blog

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!

Do you mix personal and business money in your accounts? Use one bank account for both personal and business? The accounting world calls that commingling. Someone said “commingled” on a video I was watching and the captioning translated it to “coming gold.” Well, if you are doing this kind of mix regularly, it does not mean gold is coming, or anything good is coming. I call it a “buzimess.” But how do you stop? How do you sort out your finances and then quit commingling?

When you start your business, you usually don’t have any money coming in yet. This is called pre-revenue. A nicer way of saying “operating in the red.” So you have to buy everything for the business with your own money. This is called funding your business or owner contributions. Theoretically, when you set up your business, you set up a business bank account. Then if you don’t have enough business revenue to pay for things, best practice is to put your owner’s contribution cash into your business bank account and then use that money to pay for business expenses.

When I was starting out, I tried to do exactly this. But it became pretty cumbersome right away. And seemed kind of absurd, because wasn’t it all still my money anyway?

So what is the big scary deal about mixing personal and business?

Having a business name and entity makes your business more legitimate.
Having accounts in your business name makes your business more legitimate.
A business entity is used to protect your personal assets from lawsuits against the business.
Keeping your business activities separate from personal makes for better organization. You can actually tell how the business is doing and make better business decisions.
And the big one -If you use business funds for personal use, you could lose the protection of the business entity, which means it protects your personal assets from being taken in a claim against the business.

Let’s break this down and look at exactly which financial activities are dangerous to your business entity legally:

There are four main types of transactions that can blur the line between business and personal money.

Purchasing business items with separate personal funds.
Purchasing personal items with separate business funds.
Using one bank account for both business and personal, and then you can’t tell which money is which in the end.
Using one credit card account for both personal and business charges, even if you pay the business charges with business funds. Same as Item 4.

Item 1 is the least problematic of these and actually part of normal business operations. Even when you have business revenue coming in, you may still find yourself in a situation where you have to use personal money to buy business items or pay a business obligation. This is typically one of the ways an owner actually funds their business. Any accounting problems arise with the way these transactions are recorded on the business books. One good way is for the owner to invoice the business for the expenses they covered and then the business can pay them back. Or set up an expense report system and regular reimbursements.

Many bookkeepers don’t understand the distinction for this activity and call it commingling and try to tell you to stop. It is better to keep it at a minimum but not a serious breach if you do it. Again you just need to account for it clearly and properly.

Items 2, 3 and 4 jeopardize the business entity because it means the business is not separate so the business obligations also can’t be separated from perosnal To get into more technical terms, if the business is not separate, the corporate veil can be pierced in court and the owner can be held personally liable for business matters.

So what is so bad about Item 2? Aren’t you allowed to pay yourself from your profits somehow? So why not just buy stuff for yourself from the business checking account or put it on the business credit card? There are acceptable ways to pay yourself but this is not one of them. You can take a distribution of cash directly and that is categorized as owner distribution. Or you can pay yourself wages as an employee if your business and tax structure require you to be an employee (this is more complicated than I can cover here.)

Don’t ever use your business as your piggy bank directly. It is okay if you make a mistake now and then, grab the wrong credit card. You can reimburse the business to cover it. Just don’t make it a frequent, practice or your regular way of operating. Pay yourself cash directly and book it as owner distribution.

Items 3 and 4 are closely related. This is exactly what comingling means – all in one account. It is comingled because you can’t really say which money is personal and which is business. Under Item 4, paying for the personal charges with your personal money does not fix it. It would be better if you designated the card as either personal or business and have one or the other make the payments. If you make it a personal account then you can get the business to reimburse you for business charges as outlined above. In this case you cannot claim the interest charges are business or allocate it. It is your personal obligation.

If you make the card a business account, and charge personal items, you need to reimburse the business directly, not pay the card for those items.

How do you sort it all out and clean-up your history of mixing personal and business in your books? AKA make the bizimess a real business?

Get separate accounts for your business. If you are unable to obtain accounts in the business name, you can open accounts in your own name but keep them strictly business. If you have a lot of personal credit card accounts, pick one to dedicate to business going forward.
Learn how to properly handle mistakes where you grab the wrong card for a purchase. But don’t let this lead to thinking it doesn’t matter and get lax. IT DOES MATTER.
If you have a QuickBooks or Xero account for the business, and the cards and bank accounts are all connected: Disconnect as follows:
- Accounts that will be personal going forward: disconnect.
- Accounts that will be business going forward: leave connected but be aware during the transition you will have a fair number of personal transactions transactions to account for properly.
- Go back through the prior transactions for the ones that were connected and make sure the personal items were categorized, or recategorized as owner distributions.
It likely will be a difficult mess – a royal bizimess- to untangle the past history. If you do not have accounting software set up, it can be a little easier because you are starting from scratch.
Or it may be a good idea to start over with a new accounting file anyway. If the accounts have around a 50-50 mix of business and personal, or majority personal, do not connect them to your accounting until you are disciplined with the separation of funds. If you connect them, you will have large numbers of transactions that will just go into owner distribution. If you don’t connect them, there is a way to upload only the business transactions to the business books. But if you don’t connect and just upload, you will not be able to reconcile. So then you will have to do some hand double-checking for accuracy. It’s a trade-off and a judgment call.
Is there any better way to hack this? Yes!! Don’t try to untangle it yourself! Get 5-Gen Books to do it for you! We are experienced and very good at figuring out which accounts to disconnect and how to upload and/or code the transactions.

We will also coach you and encourage you as you go through your transition to a separate business with clean books. Yes , if you have been trying to avoid dealing with this for a long time, it can take some therapy from a professional to finally kick the habit. Don’t be ashamed, we all do this at the beginning. But then we learn and end up with a legitimate business to be proud of.

Don’t go it alone! 5-Gen Books is here ready to tackle it for you. Go to shop to get a quote for monthly bookkeeping services and cleanup and schedule a call with us.

The Best Accounting Software for eCommerce

Mixing Business and Personal = Bizimess

Accounts- A Blog