There’s often a tradeoff between time and accuracy. Sure, you could create a product description in 20 minutes, but how accurate will that listing be? Typos and errors are common when certain tasks are rushed. The same applies to bookkeeping and software.
eCommerce sellers should understand the differences between bookkeeping and software to take advantage of the benefits of each.
What is the Difference Between Bookkeeping and Software?
There are two ways to do accounting for online sellers: the fast and not-so-accurate way and then the very, very slow, but highly accurate method. Bookkeeping is the slow, but reliable method of accounting, while software with automation is quick, but not so reliable.
One of the most common tasks in bookkeeping is completing reconciliations for each credit card and bank account the business has. This means that you are going through every single transaction for each account, racking up the hours spent. Sifting through each line item that cleared the bank is time intensive but generates reliable reports with reduced errors.
Software is the opposite. Automating your accounting by linking bank accounts and storefronts, like Shopify, eliminates the need for manual data entry. Instead of spending 30 hours entering transactions each month, you can spend 30 minutes one time linking your accounts.
What are the Advantages and Disadvantages of Each?
Both bookkeeping and software have advantages and disadvantages, making it important to find the optimal tradeoff. Bookkeeping gives you highly accurate data to base business decisions on, while software remains quick.
Businesses like B Profit and Triple Whale integrate with your Shopify and Facebook accounts, allowing you to plug in your cost of goods sold and cost per unit to produce a P&L every day. Bookkeeping is generally only conducted once a month when the accounts need to be reconciled. This results in only having highly accurate financials at month-end.
Bookkeeping is time intensive, meaning you might not have 10 hours to spend reconciling transactions every day. Business decisions happen quickly. You want to be able to pull information fast to help in the decision-making process.
However, software can be unreliable. If you download something from the app store and integrate it with your bank and credit cards it might not be so accurate because the computer is going to make assumptions. Without reviewing every single transaction that is downloaded, you won’t be able to uncover mistakes in account classifications.
Which One Should Your eCommerce Business Have?
Many eCommerce business owners neglect to look at the full picture of the tradeoff between bookkeeping and software. As eCommerce sellers, the more data you have, the better. You need the accuracy of bookkeeping, but the speed of software.
Most eCommerce sellers don’t have the extra hours each day to go through each transaction that occurred. By using software, you can have your transactions flow into your accounting system in real-time. Although the data won’t be precise, it is fairly accurate, giving you the ability to make quick decisions. Implementing software that seamlessly flows transactions allows your eCommerce business to see how many sales were made that day and how profitable your company is so far.
On the other hand, bookkeeping is important to ensure completeness in your accounting function and to generate accurate financials. For example, monthly reconciliations double check that your eCommerce business has recorded all transactions that cleared the bank. In addition, you can pull reports that indicate where customer balances stand or how much you owe vendors. Having highly accurate information for these reports is important.
Your eCommerce business also needs bookkeeping for accuracy and software for day-to-day operations. For example, consider implementing software for monthly reconciliations. Your software can connect with your bank account to download transactions, but you will need to ensure that each item is properly classified. This option reduces the manual data entry burden and can speed up the bookkeeping procedures at month-end.
Both bookkeeping and software are important for your eCommerce business. Analyze the benefits of using software for managing the day-to-day decisions and bookkeeping as the check of those transactions and for high-level decisions.
Summary
Software promotes efficiency and timeliness, while bookkeeping generates accurate information. Both of these components are critical to implement in your eCommerce business.
At BUSINESS, we are a bookkeeping firm, but recognize the value in using software for the day-to-day operations of your eCommerce business.
Recognizing the importance of each is the first step in finding the right solutions to manage your business, promote growth, and maintain long-term success. For more information, reach out to a team member today.
