Bookkeeping Basics for eComm Startups

eComm Weekly – EP31: 

[00:00:00] Hey everybody. Today we’re gonna be talking about. Bookkeeping for eCommerce. Now, I don’t know about you, but bookkeeping isn’t my favorite subject, but there are some, there’s definitely things that we have to know that are different from traditional bookkeeping, or if you have a retail store eCommerce there’s, um, it’s completely different.

 Why is this so important? The difference between traditional retail and e-commerce bookkeeping, uh, some of the problems that might occur the best, best practice practices, mistakes, and the difference between an agency and trying to do it yourself.

We are taking questions. So just raise your hand and we’ll bring you up on stage, but if you don’t want to be recorded, please don’t RA raise your hand and also. Uh, if you look up to the top, that little green house, if you want to hear more, really great content, uh, regarding entrepreneur entrepreneurship, give it a click and you’ll get some notifications.

[00:01:00] Okay. So Nathan, how are you? I am doing great and pumped to be here. Uh, you, we, we were on the podcast, I don’t know, a few months ago as I was building out this new, uh, bookkeeping service, econ balance. And, uh, yeah, it’s great. I mean, bookkeeping is just such a fundamental part of business that people overlook.

It’s definitely not the, the sexiest thing out there. Being able to make good decisions each month, based on what the numbers are telling you has really been the key to a lot of my success over the past 10 years. Well, probably the biggest question I have and I started out you weren’t on yet, but I was telling people that.

Yeah, you said it, this might not be the sexiest, but this could save you time, money. It could, it could mean life or death to a business if you’re doing it right wrong. So what is the importance of bookkeeping right now? Regardless of eCommerce. Yeah. So I, bookkeeping comes down to [00:02:00] a few things to me. The most important thing is being able to make real decisions on what the numbers are telling you and what the trends are telling you comparing this month to the month before comparing this month to the same month last year.

And also being able to, to segment your business. So if you’re selling on different marketplaces, you wanna know how Amazon is doing compared to Shopify. If you have different brands, you wanna know if you’re selling five SKUs, that one of them could be profitable and you might be wasting a lot of time and money on the other four.

So you, you’re not able to get that information if you’re just doing it by gut, or you’re just doing it by money, going into your bank account, you need to see real numbers, real margins, real segmentation in order to make those decision. On top of that. If you’re ever looking to get investments or get a loan or even sell your business.

Bookkeeping. I is a necessity. I, I know me selling free up at my last company. It was the most stressful six months of my life. And that was with clean and imaculate books. I can’t tell you how many deals [00:03:00] have blown up because the, the books were a mess and people had to hire bookkeepers last minute, which was expensive and, and time consuming or even worse.

You just break a lot of trust with your buyers. If you’re telling them something and it doesn’t match exactly what’s in your books, cuz you don’t know your books or your books aren’t updated, uh, correctly. Bookkeeping is the, the key to everything. And I’ll kind of also add in that, that my mentality is bookkeeper or entrepreneurs should not be doing their own books.

First of all, it’s not a time. Um, your time should be spent scaling, growing your business, but also nine outta 10 people, aren’t that great at bookkeeping. And any time you spend doing it, it’s just gonna have to get redone later by someone who actually knows what they. Yeah. One of the things that, uh, I learned, uh, early on is stick with your strengths.

So, you know, bookkeeping is something that I didn’t wanna wake up on Saturday or Sunday and try to, you know, do something. I, I, I. First of all I wasn’t [00:04:00] an expert in. And then secondly, um, I have a, I love this guy, but I had a business partner once and we were completely the opposite. I would ha be the guy that would have all the little dividers and all the, like everything done to a T.

And, um, he, at the end of the year would come to the, uh, accountant with a shoebox, literally a shoebox full of receipts and had the accountant, uh, figure it out. But, um, like bookkeeping just on a, a day to day, a week to week, month to month. It’s so important that. I hate the expression, but to know your numbers, looking at your profit and loss at the end of every month, just knowing where your position looking at that cash flow.

This isn’t gonna be a show about reading those or understanding the different ratios, but it is about the difference between, or even getting started with doing proper bookkeeping. And we’re gonna touch on this a little bit more towards the end, but working with an [00:05:00] agency compared to doing it, your. Yep.

One of the things I wanna know, um, Nathan, I you’ve looked into this. You’ve probably got some pretty good case studies on this, but there are differences between eCommerce and traditional bookkeeping or just traditional retail. You wanna dig into that a bit? Yeah. So, I mean, one of the biggest differences is just doing it cash we versus accrual basis.

And if any of you guys know Joe valley who found the, the quiet light brokerage, and he wrote a book called exit per, and he goes into this, if you wanna get a good multiple on your business and you wanna really understand what’s going on in your business, you really have to be doing, um, accrual bookkeeping.

And that, that means that if you buy $50,000 worth of inventory in January, If you do it, cash basis, January might show a huge loss because you just bought a ton of inventory. And then February and March, April might show big profits cuz you didn’t buy any inventory. And at the end of the day, that doesn’t really tell you anything about the, your [00:06:00] business.

Those numbers are pretty useless. If you’re doing a cruel, you’re actually recording it as the transaction goes through. So if you buy inventory, you might average that out over the few months, or it might count once you actually sell that inventory. So you get a much better sense of, of what you’re actually doing in your business.

And, and that’s really a, a big difference is that inventory component. It also helps you with multiples. And Joe talks a lot about this. If you ever go to sell your company, If you have your books on a cash basis, you’re gonna get a much smaller, multiple than if you have it on a accrual basis. And that’s something that can really bite you in the butt, down the line.

When, when you go to sell your company. Right. And that book, if you want to, uh, mention it again. Um, I have it, uh, I’ve read it. It’s incredible. It’s, it’s a great book, uh, from Joe. Uh, what was the name of it again? Exit per, and it also talks a lot more or a lot about why you need an e-commerce bookkeeper because, and I made this mistake from my [00:07:00] Amazon business back in the day.

I hired my local bookkeeper that my friends referred and that person had no idea about e-commerce. They didn’t know about Amazon fees or refunds or inventory or any of that stuff. E-commerce is a completely different animal. You want someone who knows what you’re doing and, and even just connecting Amazon to QuickBooks, the average bookkeeper will, will try to take it and, and, and put, go by the Amazon reports or go by, but it’s being deposited in your bank account.

You really need a software like a two X or connect books. We use a two. To, to get that information in, in an accurate way. Amazon just doesn’t make things easier for, or easy for sellers or, or for bookkeepers. You, you kind of need that, that third party. And a lot of sellers will even do it wrong where they’ll take the money that goes into their bank account from Amazon.

And that’ll be the top line in their income statement, which isn’t correct. Your top line is the sales on. Minus all the fees, refunds, whatever. Um, and then, then that’s your, the, the net that goes in there. So [00:08:00] you, there, there are certain just nuances that comes with doing books correctly for e-commerce businesses.

You’ve dug into this a bit. I know. Uh, when you were, uh, looking around you, you have a company that you’ve started, uh, with bookkeeping. We’ll talk about that a bit later, but you were doing some. Very interesting, uh, research. And, uh, I I’d like to hear what some of the good, the bad the ugly were when people were trying to do e-com.

Uh, you were talking to a bunch of different e-com sellers and what, what did they have in. Yeah. So we interviewed before we start any business, we, we like to do a lot of market research and we interviewed 200 plus eCommerce sellers before we even started econ balance, which is my, my monthly bookkeeping service and outside of Thermo stuff that, that I just talked about, a lot of people will have their, their CPA, their accountant, who finally their taxes do their books.

And [00:09:00] it’s important to keep in mind that you can do books correctly from a tax standpoint and pay the right amount in taxe. But still not have the books in a way that the average entrepreneur can make decisions off of. I think that’s kind of the unique perspective that, that we bring is we’re eCommerce sellers.

First we’re entrepreneurs. First we speak entrepreneurship and a lot of bookkeepers don’t do that. And if you have a CPA, that’s doing monthly books, the, the chances that they’re able to do it every single month on time, in addition to their tax work and display it in a way for you to make decisions. I is pretty small.

They’re focused on the tax side. They have busy seasons. I know I have accountant accounting, friends who I don’t talk to for 90 days from February to, to may because they’re so swamp doing taxes. So it it’s always been in, in my, the way that I’ve always done it is have my accountant focus on the taxes and have a bookkeeper focus on the books and make sure the bookkeeper can keep it like on an autopilot every month where the month ends and between the 10th of the [00:10:00] 15th.

I get my income statement down sheet cash flow. I can make decisions. And then I’m also not stressing out at the end of the year. I can easily pass it over to my accountant to do the taxes, and they can also give me the tax strategy. So be, be able to kind of split that up and have each person focus on what they’re good at.

And also it saves you a little bit of money too, because CPAs are, are more expensive. To me is a much better way to go. I, on top of that, a lot of people had issues with bookkeepers, not understanding e-commerce, which I talked about. A lot of people had issues with how costed goods were, were calculated and not having good processes for that.

And, and another big thing is cash flow. I mean that a lot of e-commerce businesses go outta business. Not because they’re unprofitable, but because they just run outta cash and we work with an eight figure seller who. Does the majority of their sales, like four or five months a year. So the rest of the year is very slow, but they, they don’t wanna just fire all their people and hire new people every six months.

They [00:11:00] need to be able to pay their people through the slow time. So being able to. Project out cash flow months in advance and how much money you’ll actually have so that you can be proactive getting loans or, or just bridge gaps or, or whatever it is, um, becomes incredibly important. So that’s just a few things that kind of came up in our research outside of, of the, the typical bookkeepers, not communicating or not being able to scale because they’re mom and pop and they start off with a few clients and then they, they ramp up.

Um, yeah, that, that was a lot of what we learned. And if you go to the econ balance blog, you can actually see. We wrote an article about all those interviews that we did with other sellers. So let’s say that you’re just getting started. Where, where do you even start in the whole process? It could be really confusing.

Yeah. So where you start is you try to keep it simple. I, I know a lot of people will try to do profit first or they’ll try to open up a lot of bank accounts or open up credit cards to, to get a good deal. Keep it [00:12:00] simple until you get bigger. Try to have one bank account, one credit card, maybe two credit cards.

If you’re selling on Shopify, for example, you don’t need five different payment processors. Use one like Stripe. That’s very easy to use. And get a bookkeeping set up from day. And you, whether you use my service or someone, else’s make sure that that bookkeeper can speak your language, make sure that they can, um, could do things on time every single month and, and get into a routine where there’s a meeting on your, uh, on your calendar with your business partner, your team leaders, your wife, your husband, whatever it is.

On that 15th of every month where you’re reviewing the financials from the previous month and you’re looking for trends. And if you’re not able to have that meeting every month, whether it’s because your bookkeeper’s late or they’re not getting you information, that that’s a, a sign that you need to change up your systems, your process is it, it should be on autopilot.

Where you have that meeting every month, reviewing the previous month and making decisions. And, and that’s the core basic [00:13:00] setup of every business. And you can always add to that. You can always add different KPIs and reports, but you should the very least be reviewing your income statement and balance sheet every single month with your business partner and have a bookkeeper that can provide that on time, uh, in a way that you can understand.

And just providing the information. Uh, one of the things that, uh, like I have an ongoing, uh, just daily with my bookkeeper. Um, if, if receipts are coming in, I, I have. All of my receipts kind of bundled that come in electronically. So it’s a digital receipt and I send it over to the bookkeeper. They upload it, uh, like I’m kind of anal when it comes to this, but I wanna have everything in my Google docs as well as up into my, uh, just a QuickBook.

So you could see the receipt, you could review the receipt just in case you ever need to have it. But like for me, my, once we get, uh, once we [00:14:00] had everything in place, it took a bit to set up, but we use, um, another what’s it called? Text that’s where all of our receipts, like I think it’s got thousands of different suppliers.

You can even. Which helps you save time and money. Um, and it saves your bookkeeper time and money. It uploads all your statements, all your utility bills, anything that you need for the most part. And it saves you time. So these are a few things you can do to help save a few bucks, but organize your book.

And if it ever comes up to it, if anybody has to review it, you know, maybe an audit. You’ve got everything laid out perfectly. And that’s another reason. Um, Nathan for good books. If you have an audit, they’ll look at your calendar. They’ll look at like, just to see if the proper gas mileage is in place.

They’ll look at like a ton of different things, but having great books, um, The job easier [00:15:00] for you and less stress, no heart attacks. Um, you know, when and if an audit occurs, any thoughts on that? Yeah. I mean, I completely agree. I mean, that’s kind of, my worst nightmare is getting audited. Not that I would fail it, I’d probably pass a flying covers, but it just seems like a stressful thing to, to go through that.

No one wants to. I mean, there are people that haven’t done their books in six to eight months, and then if they get audited, it’s even more of a, a chaos. So it definitely helps you kind of keep everything in line. Um, you can keep it very simple. You can use the tools that norm said. You can also just have an email account.

Like accounting at whatever your company is. And I send all receipts there and, and that way it keeps track of them as, as a bookkeeper, you know, like we don’t necessarily need the receipts of our clients. Um, everything’s digital. So if we have credit card statements, we can just go by that in terms of categorizing things and doing the book correctly, the credit card, the receipts are really there in case you get audited and to have a role in one place, nicely organized, um, for, for, for if [00:16:00] that happens.

The other thing I’ll add is there’s two major softwares out there. Uh, QuickBooks and zero. Those are the top. If you’re not using those two or using something like wave that’s free, it’s free for a reason it’s got limited functionality. It’s not gonna help you down the line. You’re, you’re better off just going with one of the major two from the beginning.

You’re, you’re gonna be thankful that you did years down the line. Almost every person that uses like Zoho or wave or whatever it is eventually has to, to switch to QuickBooks or zero, especially if their business scales. And, and so it just makes sense to do that from day. All right. Let’s talk about mistakes.

What are some mistakes that, uh, sellers are doing right now? Yeah. Good question. I mean, I mentioned one of them money just deposit in their bank account, being top line on their income statement. Um, not having those monthly meetings is, is a big mistake. Um, not actually knowing their, their margins on different products.

That that’s a big one. Like right now you [00:17:00] should be thinking her head. Do you actually know. What you’re making both gross and net on each product so that the gross is the, the minus the cost of the product. So if you sell something for 50 and it costs you 25, you got a 50% gross, which is high. Um, but then also there’s expenses that you might have an office employees with whatever it is.

So do you actually know the, the margins of your business and you actually know the trends of your business? Like a lot of times people. We’ll try to scale their business, but there are some businesses that, that will scale and become more profitable that you get as you get bigger. There are other businesses that as you scale, sometimes the margins actually go down because you need to hire more people.

You need more warehouse space, whatever it is. So the goal isn’t to make it as much revenue as possible. So you can post about it on Facebook. The goal is to increase your profits over time, and there’s certain businesses that it might make sense to stay at six figures or stay at seven figures or, or whatever it.

Because that’s when you can get the highest margin and trying to [00:18:00] grow from there, you’re, you’re actually not necessarily helping yourself. So those are just a. Great. I know you’ve touched on this before, but um, let’s can we go through, you know, a couple of the best practices again, I know you’ve already touched on you, but can we just go through them and then we’ll start talking a little bit more about agency versus, uh, doing it yourself.

Yeah. So best practices is to have a meeting on your calendar. Between the 10th and 15th of each month with your business partners, your team leaders, whoever it is to go through income statement, balance sheet and cash flow. Um, make sure you’re using a software like QuickBooks or zero. Um, make sure you’re using a, a third party, like eight, two X that can connect to Amazon and Shopify.

Um, make sure that you’re using as few bank accounts and few credit cards. Possible or as necessary, there might be a situation where you need two bank accounts or whatever it is, but the, as small as possible that we’ve seen clients that have 10 bank accounts for [00:19:00] absolutely no reason, it just leads to headaches and chaos and, and more work for their bookkeepers for their accountants.

Um, and, and lastly, make sure you have a bookkeeper that knows eCommerce that can deliver on time every single month. And that can put things in a way for you to underst. I, um, I belong to a, a course that you’ve created, which is absolutely fantastic as, uh, and I, I didn’t know, I, I don’t think it has SOPs on accounting, but you start thing called outsource school, which is probably the number one outsourcing course out there.

I know this isn’t about, uh, outsourcing, but do you have, I’m just curious. Does that have any, uh, ease for accounting? Yeah. We have a, a bookkeeping playbook on how to hire a VA to do your bookkeeping. Um, to be honest, it it’s. It works for some people, it doesn’t work for some people. We’ve had businesses that we’ve hired VAs for, and they’ve done a great job.

[00:20:00] I’ve also seen entrepreneurs that don’t know enough about bookkeeping to, to really hire a VA to do it. And it also depends on, on how complex your, your books are, but we definitely, we definitely have a, a course. Uh, it’s like a mini course inside outsource school about hiring bookkeeping. And we also have a Memorial day sale going on.

If anyone wants to check. Join school. Okay. And, uh, I can tell you that, uh, I use it it’s, it’s great. I’ve uh, it’s not just about bookkeeping. There’s tons stuff there about hi, how to hire and work with VAs and, and there’s a ton, so check it out. Um, I don’t have anything to do with it. I don’t have affiliate just, uh, it’s called out.

Cool. Okay. Let’s get to agency versus doing it itself. We’ve touched on it a bit. What are, what are some of the, uh, the pros and cons of both? So it, to me, it’s not between an agency and, and doing yourself, you should never be doing your own books. There. There’s no real entrepreneurs [00:21:00] out there that have success.

That to have time to, to really do their books every single month. And I kind of mentioned. It most entrepreneurs aren’t doing their books correctly. It’s just not worth it for you to take a QuickBooks course or, or whatever it is to do. ’em to me, it’s between, do you hire an internal employee and there there’s pros and cons to all these.

So an internal employee, they, they just work for you. They learn your business inside and out, but they’re also more expensive. They might cost $80,000 a year, whatever it is that you could hire a VA. If you hire a VA, it’s obviously cheaper and.

Oh, I don’t know if we lost Nathan or not.

Okay. It sounds like, uh, Nathan might have got cut off. Uh, we’ll give him a second or two, but uh, if anybody has any questions, just, uh, raise your hand in way a.[00:22:00] 

And I think we lost them, but anyways, uh, just to recap, I think is really important, uh, to be able to do exactly like Nathan said, if you’re spending time and money on a weakness or something that you’re not good at, why are you doing it? All entrepreneurs should be working on their strengths. Um, and we touched on it.

Outsourcing is great. Uh, let’s let’s say you’re not great at creative, or you need to do something different, go and, and check out outsource school and learn how to hire properly. But this also goes over to the bookkeeping and it is just a nightmare. Uh, it is a waste of time. It is a waste of time and money if you’re not doing it right.

Plus if you ever need to sell or want to sell your company, or if you get an audit. It’s so much better if you can present, uh, everything on a silver platter. [00:23:00] Okay. So we should end it here. I guess. Nathan can’t get back on, but Hey, I’m back on. Oh, okay. All right. Sorry about that. I don’t know what happened there.

Where where’d you lose me? What’s the last thing you heard me say? Oh, I, I don’t know. I just started rambling after you didn’t come back off. But if you want, if you wanted to touch base, just going back to the pros and cons of hiring the, the employee within. Yeah. So to me, it’s not between doing it yourself or doing it, but, or hiring a service it’s between, do I hire an employee?

Do I hire a virtual assistant? Do I hire, um, a CPA to do it, or do I hire a bookkeeping service and the employee, the pro. They’re they’re specific to you and they learn the ins and outs of your business. Um, but they’re expensive. The VA is cheaper and they, they learn the ins and outs of your business, but you have to be really be able to manage them, which not every entrepreneur can do.

The CPA is more expensive and they’re very [00:24:00] much more focused on tax, but they might have a bookkeeping service as an add-on and a bookkeeping service. They obviously have other clients, which, which may or may not be a con. Um, but they’re just focused on bookkeeping and, and that’s like their core focus.

So that’s really the decision is the employee, the VA, the CPA or the bookkeeping service, no matter what you shouldn’t be doing it yourself. Okay. Very good. And I think that’s it for today. Nathan? How do people get a hold of you? Yeah. Feel free to follow me on social media, Nathan hich. Um, but yeah, go to econ balance.com.

You can check it out. You can get a free month of bookkeeping to try us out. And, um, nor mentioned outdoor school too, if you wanna check that out. Okay. Thanks a lot, Nathan, for coming on. Hopefully we can get you back on again. And, um, just, you know, I can’t stress enough the importance of having a, a good bookkeeper and keeping your book straight.

Okay. So join us every Thursday at noon or at one, uh, for e-comm weekly. [00:25:00] Uh, also just go check up at the top left. If you wanna learn more about entrepreneur entrepreneurship, just click on the green, uh, house and you’ll get notifications until next. We will see you then. And thanks again, Nathan. Thank you.