eCommerce sellers are constantly trying to find ways to improve efficiency. Whether that be speeding up shipping times or reducing website lags, efficiency often translates to greater productivity and profitability.
However, this isn’t always the case regarding your bookkeeping and software. Understanding the primary differences between bookkeeping and software, including the pros and cons, can help you leverage the benefits each has to offer in your eCommerce business.
Understanding the Difference Between Bookkeeping and Software
Online sellers have two choices in managing their accounting: the fast and not-so-accurate way or the slow and precise way. Bookkeeping is referred to as the slow method but highly accurate method of accounting, while software is quick but leaves room for errors.
One of the most time-intensive tasks of bookkeeping is completing monthly reconciliations, which can take countless hours depending on how many transactions your business is incurring. This means that you are going through each line item on the bank or credit card statement, typing it into your system, categorizing it, and clearing it. Since everything is being reviewed on a granular level, there are minimal mistakes in the data.
On the other hand, software leverages technology by automating the flow of data into your accounting system. Connections with Shopify, Amazon, and your financial institutions eliminate the need for manual data entry. Instead of spending 25 hours typing in data, you can spend 25 minutes linking your accounts. However, there is no guarantee that the information will flow accurately, leading to errors and misclassifications.
The Advantages and Disadvantages of Bookkeeping and Software
Both bookkeeping and software retain advantages and disadvantages that should be considered before selecting a method for your eCommerce business. Bookkeeping gives you precise information, making it great to base high-level business decisions on, such as whether to discontinue a product or how to improve profitability.
On the contrary, software is fast and can save you countless hours, freeing up time in your busy schedule. Certain businesses, like B Profit, have created integration capabilities with your eCommerce storefronts, allowing you to enter your cost of goods sold and see tangible information on how your business performed that day. This information is important to keep operations on track and in line with your budget.
Nevertheless, the main disadvantage of bookkeeping is the time it takes to go through each line item. You might not have 5 hours a day or 15 hours a week to spend reconciling transactions, especially if you are managing an entire team. Business decisions happen quickly. You don’t want to tell a prospective lender or investor to wait while you go through your transactions. You want to be able to pull information on the fly to make an informed decision.
The top pitfall of software is the potential for inaccurate information. When software categorizes transactions, it bases the classifications on assumptions or past data, which can be inaccurate. Without reviewing every single transaction that flows into your system, there is no way to guarantee that the information is accurate.
Choosing the Right One for Your eCommerce Business
Finding the optimal tradeoff between bookkeeping and software is important to maximize efficiency and productivity while prioritizing accuracy. Most eCommerce sellers see the benefits of using a combination of both bookkeeping and software.
Software can be used to flow transactions in on a daily basis, providing you access to quick reports to base general business decisions on and giving you access to real-time data. Although this data won’t be as accurate as the information provided by bookkeeping, it gives you a general idea of where your business stands at that moment.
Bookkeeping can be leveraged on a less periodic basis, usually monthly, to check the transactions that the software downloaded into your accounting system. This provides highly accurate reports at month-end and serves as a double check that your eCommerce business has recorded all transactions. After bookkeeping is complete, you can also pull vendor and customer reports to see what action is needed.
You shouldn’t have to sacrifice efficiency for accuracy, especially as both bookkeeping and software create advantages for your eCommerce business. Utilizing software for day-to-day operations and bookkeeping for accuracy gives your business an optimal tradeoff between accuracy and timeliness.
Summary
Both bookkeeping and software are valuable components of running a successful eCommerce business. For more information on how your business can leverage your accounting function, reach out to the team at BUSINESS today.
We recognize the value in bookkeeping and software and can work with you to uncover the specific ways your business can implement each. Reach out today for more information.
