Sellers without effective bookkeeping will make emotional decisions based on incomplete data. Profits may be lower than expected, and costs and fees may exceed 70% of revenue.
The question is not if you can afford good bookkeeping, but if you can afford to grow in the dark.
This guide describes the principles of state sales tax management, value-added inventory management, and multi-platform revenue management. You’ll discover effective methods to implement, whether your business is on Shopify, Amazon, Etsy, or even all three at the same time.
Let’s begin.
Why Multi-Channel Bookkeeping Becomes Complicated Quickly
Operating on a single sales platform is easy to work with. But the moment you open a second or third platform, everything starts to tangle.
Going multi-channel means:
Your revenue comes from all over. Shopify is quick to give you returns within a few days, while Amazon takes a couple of weeks, and Etsy is even longer. You’ll have to fully account for and cross-validate all sales and deposits to figure out which is which.
Every platform charges different fees. Shopify needs a 2.9% cut plus 30 cents for the transaction. Amazon takes 15% in referral fees plus all the fulfilment costs. They all work in different ways and do not integrate seamlessly with any standard accounting system.
Inventory tracking becomes a puzzle. And you have to ask yourself, how many do you actually have? And that value of your inventory?
Sales tax multiplies your headaches. Different states have different rules. Some platforms act as tax collectors, while others do not. Miss a tax deadline, and you’re faced with penalties that wipe out weeks of profit.
Clarifying Sales Tax for Online Sellers
Sales tax is likely the greatest concern for sellers in terms of compliance. It is no surprise that this is so.
The Marketplace Facilitator Confusion
This is a tricky situation with a seller and a marketplace facilitator. Laws with marketplace facilitators confuse sellers when it comes to transactions and taxes.
Shopify does not collect tax for you. That is entirely your responsibility. So if you are selling the same product on both platforms, you have uneven revenue responsibilities in different states.
Ignore this, and you will receive a letter from a state tax authority asking for back taxes and penalties. And penalties are the last thing you want.
Tracking your Actual Tax Obligations
Your sales tax liability is a function of multiple things:
- Where your customer lives
- Whether the platform collected tax for you
- What you are selling (some items are tax-exempt in certain states)
- Local tax rules in that area
Consider a single $50 sale through Shopify (you handle the tax) vs. Amazon (they might handle the tax) to a customer in a state where you have nexus. Different obligations are caused by the choice of platform and the sale amount.
Automated tracking is critical for growth. Without it, you will either end up overestimating your tax obligations and hurting your margins, or underestimating your tax obligations and inviting an audit.
Managing Inventory Across Multiple Channels
Inventory management is the function of your cash, and it is the most concerning part of an e-commerce business. It is where things can go wrong very quickly.
The True Cost of Your Inventory
Before you sell anything, those 500 units have probably cost you close to $6,500.
Now multiply that by dozens of other products stored at different locations, and you are in for some complicated inventory valuation.
Tracking Inventory in Multiple Locations
Let’s consider a typical situation. You have 200 units of one product, but 80 are at Amazon’s Nevada warehouse, 50 are in your garage for Shopify orders, 30 are in transit to your fulfillment partner, 20 are marked “unfulfillable” on Amazon due to damage and the last 20 are unaccounted for.
This is fairly typical for multi-channel sellers. Poor tracking systems deny you the ability to make effective restocking decisions, resulting in lost sales and serve storage fees on overstocked products.
Effective Bookkeeping Systems
Your bookkeeping system needs to function in the real-world, not simply in your mind.
Daily Minor Audits
Every day, make sure to verify:
- Orders for all sales channels
- Customer service for any finance-related issues
- Current inventory levels (are you at risk of running out of any bestsellers?)
Weekly Reconciliation
Every week, ensure you reconcile:
- Sales reports by channel versus actual payouts
- Inventory (sold, returned, in transit)
- Major expenses (did that $2K ad spend hit your account?)
Discrepancy avoidance and detection is important and time sensitive. Perhaps a $500 Amazon overage and 50 missing units. If you wait a month, the problems will only compound.
Monthly Deep Dive
End of each month is for serious bookkeeping:
- Profit/loss statement with real numbers to your P&L
- Analysis of cash flow
- Quarterly strategy review
- Each quarter, review and ask tougher questions:
- Your software must: Integrate with sales channels. This is crucial as many bookkeeping errors are caused by manual uploads. It must pull all information from Shopify, Amazon, Stripe, PayPal, and your bank.
- This is important if you are selling in other countries. Exchange rates and fees significantly impact profitability.
- Automate the categorization of expenses. This includes the Amazon FBA fees, which are COGS and not operating expenses. Facebook ads are marketing expenses, not operating expenses. Your software should recognize these differences.
Create tax-ready reports. This means you require P&Ls, balance sheets, and cash flow statements that are accurate and efficient, saving you the time spent on corrections.
Knowing When to Get Help.
DIY bookkeeping works up to a point. Generally, that is around $500K a year in revenue or when you expand beyond two sales channels.
Professional e-commerce bookkeepers understand your needs. They classify Amazon fees accurately. They monitor nexus obligations. They stress-free reconciles multi-location inventories.
Avoiding Expensive Mistakes.
Let’s discuss mistakes that cost you cash directly.
Mixing Business and Personal.
You shipped orders and grabbed a coffee. You paid with your personal card and want to deduct it.
This happens thousands of times yearly and creates an absolute nightmare.
Separation of business accounts isn’t optional. Each business transaction is processed in business accounts, and personal transactions are processed in personal accounts. No mixing, ever.
Missing Tax Deductions
Most sellers don’t know about the de minimis safe harbour rule: you can immediately expense purchases under $2,500.
Got a $2,000 laptop for product photos? That’s a full resolution of the expense and not multi-year depreciation.
Understand the implications of the regulations, and follow them.
Tracking Use of Personal Inventory
Inventory includes the skincare products you use and sell. Personal use of inventory is recorded as a “purchase” from your business at cost.
If you don’t record these, inventory counts and your taxable income will be inaccurate. Facing an audit will result in additional issues.
Final Thought
Having accurate books, including the correct management of sales tax, proper inventory control, and regular revenue reconciliation across channels, is proactive compliance management.
Everything else is an expensive guess.