Let’s start with the truth: if you’re running an e-commerce business, your passion is likely in the product or service you’re selling; not the spreadsheets, balance sheets, or profit-and-loss statements. But as someone who has spent 30 years providing accounting and business consulting, I’ll tell you this: solid accounting is the engine under the hood of every successful e-commerce operation.
Without it? You’re just guessing. With it? You’re scaling smart, maximizing profits, and sleeping better at night.
What Does a CPA Do for E-Commerce Businesses?
You may be wondering, “What can a CPA actually do for me?”
Well, while a Certified Public Accountant assists with annual tax filings, their role encompasses much more for e-commerce entrepreneurs. Beyond tax preparation, a seasoned CPA can provide invaluable guidance across various crucial aspects of running an online business. They will help set up cloud-based accounting systems to easily track revenues and expenses throughout the year. Additionally, they advise on complex sales tax regulations that differ state-to-state to ensure full compliance. CPA’s also recommend appropriate inventory valuation methods and prepare detailed financial reports integral to securing funding from investors. Moreover, they devise savvy tax strategies tailored to each business to maximize available deductions and lower costs. Perhaps most importantly, a CPA keeps close watch over cash flows and profits through close monitoring of accounting records to aid in long-term financial planning and decision making.
A CPA is your financial translator. The task? To assist you with understanding the language of your business’s numbers and act on them wisely. This is important to get an overview on how your business is actually performing.
Top Bookkeeping and Accounting Tips for E-Commerce Brands
Whether you’re selling on Shopify, Amazon, Etsy, or WooCommerce, e-commerce accounting has its own flavor. Here’s how to stay ahead:
1. Separate Business and Personal Finances
One bank account. One credit card. All business.
Keeping your e-commerce business finances separate from personal spending isn’t just smart. It’s essential for accurate records, easier tax prep, and peace of mind.
2. Use Cloud Accounting Software (QuickBooks, Xero, A2X)
Manually tracking sales, returns, and fees? That’s the old way.
Modern e-commerce CPAs (like us) recommend integrating platforms like QuickBooks Online or Xero with A2X Accounting to automatically pull in data from Amazon, Shopify, and more.
3. Track Inventory Properly
Inventory is tricky. It’s both an asset and a cost.
Use systems that sync with your platform to accurately track your cost of goods sold (COGS). This keeps your margins clear and your books clean.
4. Reconcile Bank and Payment Processor Statements
Between Stripe, PayPal, Square, and others, money moves fast — and not always cleanly.
Monthly reconciliation helps ensure no money is left unaccounted for. A good CPA ensures you’re not missing a dime (or overreporting income!).
How to Choose the Right Accounting Method for E-Commerce
Choosing the suitable accounting methodology isn’t just a specialized choice — it will significantly affect how you observe your enterprise’s overall performance, how you plan for tomorrow, and how you control your taxes. In e-commerce, where money streams promptly and inventory moves continually, the mode by which you log dealings concerns more than one may imagine. The two chief methodologies of accounting are hard currency and accrual. Each has its own benefits and drawbacks, and opting for the suitable one is reliant on the scale and intricacy of your venture.
Some smaller firms may find that the simpler cash method meets their needs, allowing flexibility in how revenues and expenses are tallied from month to month. Larger companies with more complexity generally benefit from the accrual approach, which strives to match revenues to the time periods in which they are earned regardless of when cash changes hands. While accrual accounting brings increased compliance requirements, it can provide a more accurate picture of financial performance.
Cash Accounting
Cash accounting is straightforward. You record income only when money actually hits your bank account, and you log expenses only when you pay the bill.
Example:
If you make a sale today but the customer pays you next week, you record the income next week — when the money arrives.
Pros:
- Easy to implement and understand
- Useful for small e-commerce shops just getting started
- Keeps your focus on real-time cash in the bank
- Often allows you to defer taxes until payment is received
Cons:
- Doesn’t reflect income that’s been earned but not yet paid
- Ignores unpaid bills you’ve already committed to
- Doesn’t track inventory well
- Can make your business appear more profitable (or less) than it actually is
In short, cash accounting is like checking your wallet before a purchase. It tells you what you have, but not what you owe or expect to receive.
Accrual Accounting
Accrual accounting offers a more precise view of finances by recognizing earnings and costs as they occur, not just when cash is received or paid out.While accrual basis requires more effort to track revenues at the time of sales and tie expenses to relevant periods, it paints a much clearer financial picture over time. Some periods may appear more profitable on an accrual basis compared to cash accounting. This is due to unpaid receivables or unpaid bills on the books. Nevertheless, getting precise with accrual adjustments is essential for any business wanting a detailed comparison of income statements and balance sheets over the years. Proper accrual accounting lays the foundation for insightful long-term financial planning and decision making.
Example:
If you sell a product today but don’t get paid until next week, the sale is still recorded today.
Pros:
- Gives you a clear picture of profitability
- Matches revenue with related expenses for better analysis
- Essential for managing inventory and cost of goods sold (COGS)
- Required by GAAP (Generally Accepted Accounting Principles) and often by lenders/investors
Cons:
- More complex to manage without proper systems
- May show profit even when cash flow is tight
- Requires regular reconciliation between financials and cash on hand
For growing e-commerce companies, accrual accounting is typically the smarter choice. It aligns your financial reports with the real activity of your business and helps you make informed decisions about pricing, inventory, and long-term strategy.
Why Most E-Commerce Businesses Switch to Accrual Accounting
As your business scales — particularly once inventory and multichannel sales come into play — cash accounting often becomes too simplistic. You need to understand:
- How much product you’ve sold, but haven’t been paid for
- What expenses are coming due
- How much inventory is on hand and what it’s worth
- Whether your business is truly profitable month over month
Accrual accounting gives you this insight. It shows the true performance of your e-commerce business, even if there are delays in cash collection or payouts from platforms like Amazon, Shopify, or PayPal.
And while the switch from cash to accrual might sound intimidating, it doesn’t have to be.
Your CPA Can Guide the Transition
A seasoned accountant can guide entrepreneurs smoothly through the shift from tallying cash flows to tracking accruals. We’ll help analyze whether the time is right for a transition based on revenue growth, expanding inventory, and adjustments to tax planning.
The accounting software must be configured to produce reports using the accrual method. Employees require training to comprehend accrual-based financial statements and understand how timing differences between expenses and payments impact profit levels. Compliance with IRS rules is crucial, especially for businesses approaching the $25 million income threshold where accrual accounting becomes mandatory.
While accounting practices may lack glamour, a strong foundation is essential for sound finances as an e-commerce venture changes direction rapidly. Having the proper accounting method in place prevents snap judgments from limited data that could lead entrepreneurs to make costly mistakes. Evolving rules and rising sales volumes make advisory support vital for maintaining a true picture of fiscal health as an online business evolves.
Sales Tax
Ah, the intricate labyrinthine nature of sales tax compliance is ever shifting. Due to the pivotal 2018 Supreme Court ruling in Wayfair v. South Dakota, states can now compel out-of-state merchants to collect and remit sales taxes based solely on revenue generated within their boundaries. Furthermore, those hawking wares to clientele situated in an assortment of states may be obligated to duly pay sales duties on such transactions. Regardless of whether tangible operations are established inside their jurisdictions.
The right CPA helps:
- Determine where you have nexus
- Register for sales tax permits
- Automate collection through Shopify or Amazon
- File your sales tax returns on time
Don’t try to DIY this. The penalties are steep and states are cracking down. Get expert help.
Understanding Cost of Goods Sold (COGS) in E-Commerce
Let’s demystify one of the most important financial terms in e-commerce: COGS.
COGS includes:
- Product costs (from supplier or manufacturer)
- Packaging
- Shipping to warehouse
- Customs/duties (if importing)
Tracking it accurately helps you price your products for profit. A CPA ensures your COGS is calculated properly, impacting both your taxes and your bottom line.
Why Cash Flow Is King (Even When Revenue Is High)
While some e-commerce entrepreneurs eagerly tout six-figure monthly sales, often lurking just beneath the surface lies a much grimmer reality: perpetually unpaid bills and chronic cash flow issues. Why? For many, the triumphant sales tallies trumpeted so loudly fail to illuminate the less flattering lag between the moment an order ships and when funds materialize, leaving them ill-equipped to manage seasonally fluctuating demand or withstand unforeseen delays extracting money owed from payment processors or marketplaces.
Despite moving plenty of product, questions remain about whether these merchants have truly mastered the art of translating top-line numbers into liquidity able to sustain ongoing operations when unanticipated gaps arise between revenue recognition and the conversion of accounts receivable into cash on hand.
Smart cash flow planning includes:
- Forecasting expenses
- Timing inventory purchases
- Managing credit card cycles
- Creating reserves for tax time
A good CPA is like a financial GPS — mapping the money terrain so you never get lost or stuck.
Tax Planning for E-Commerce Businesses
You shouldn’t fear tax season. You should own it.
Great tax planning for e-commerce includes:
- Choosing the right entity structure (LLC, S-Corp, etc.)
- Taking advantage of deductions (software, home office, contractors, subscriptions)
- Planning quarterly estimated tax payments
- Leveraging retirement plans (like SEP IRAs)
- Keeping accurate records all year long
Waiting until April is too late. Work with a CPA year-round to make sure you’re not leaving money on the table.
Common Accounting Mistakes E-Commerce Businesses Make
Even the best entrepreneurs make accounting blunders. Some common pitfalls I’ve seen include:
- Not collecting sales tax correctly
- Failing to track returns and chargebacks
- Overstating revenue from platforms (not accounting for fees)
- Neglecting to plan for taxes — and getting hit with a surprise bill
- Mixing personal and business expenses
With expert guidance, these mistakes can be avoided — and your financial life becomes a lot smoother.
When to Hire a CPA for Your E-Commerce Business
It’s never too early. But here are key signs it’s time:
- Your sales are growing (over $50K/month)
- You’re overwhelmed by bookkeeping
- You sell in multiple states or countries
- You need help with tax planning or payroll
- You want clean, investor-ready financials
A great CPA pays for themselves in savings, strategy, and support.
Accounting Should Work for You, Not Against You
You didn’t get into e-commerce to wrestle with the tedious tasks of reconciling statements and collecting receipts. Rather, your passion lies in creating freedom, income, and impact through this business. However, navigating the financial complexities can derail those lofty goals.
Stephen P. Gunby & Associates provides a solution. We understand the struggles of entrepreneurship, as well as the joy it brings. Our team of experts lifts the administrative burden and provides strategic guidance. Impactful accounting practices and optimized tax filings provide the framework for your visions to blossom. Meanwhile, clear books and intelligible metrics lead the way to smart expansion. Freed from confusion over numbers, you regain energy for the rewarding work of growing your brand through innovation and service.
Let’s Talk About Your Accounting Needs
Whether you are a newcomer launching your initial endeavor or an established operator seeking to expand your burgeoning realm, the advisors at Stephen P. Gunby & Associates are present to offer guidance in understanding the figures with surety. We have aided hundreds of proprietors comparable to yourself in organizing accounts, lessening tax obligations, and forming judicious choices. Schedule a complimentary introductory discussion presently and permit us to help transport your e-commerce efforts to newer elevations with lucidity, self-assurance, and fiscal oversight. Let us forge something noteworthy. And sustain it on a financially sound foundation.
