The dropshipping model has changed traditional eCommerce frameworks by allowing new entrepreneurs to start a company with very little capital.
A lot of dropshippers do not need to worry about holding inventory and can instead concentrate on sales, marketing, and customer service. But one extremely important component that is always ignored is bookkeeping.
As your dropshipping business expands, it becomes increasingly more complex with multiple suppliers, hundreds of transactions a day, advertising expenses, international sales taxes, etc.
Without organized bookkeeping procedures, your business will face cash flow problems, taxation challenges, and an unrealistic representation of profitability.
That’s why bookkeeping for dropshipping and ecommerce businesses is not only beneficial but imperative.
Why Bookkeeping is Important in Dropshipping
Organizing receipts and invoices is not the sole purpose of bookkeeping. It’s one of the most important parts in maintaining a healthy business. For dropshipping, the stakes are even higher due to the complexity of the model. Let’s examine why it is critical.
1. Cash Flow Monitoring
In dropshipping, profits are often earned in small margins. This means that every dollar counts and must, therefore, be monitored all the time.
Your bookkeeping allows you to track the real-time cash flow into your business. In other words, it helps understand how much can be reinvested back into the business for marketing, purchases, or even scaling the business.
If you do not keep a close eye on your cash flow, you might get yourself in a position where your sales are coming in, but you cannot pay for things like ads or supplier invoices.
A systematic approach to booking gives you control over your finances so that you’re always aware of your corporation’s runway and can thus make smarter budgeting decisions.
2. Sales Tax Compliance
For business owners selling products or services on multi-state levels, be it national or international, they have to deal with a complicated web of varying taxation laws. Some have marketplace facilitator laws that others do not.
There are situations where we are talking about foreign clients, which can trigger VAT obligations. You also have other platforms, such as Shopify, Etsy, or Amazon, that deal with taxation in their own way.
Having their business books correctly maintained will ensure that sales tax collection, recording, and submission will all be done correctly. Doing all this legitimately without causing any audit issues. They can also provide proper monitoring of the different tax obligations within the different territories in which the business operates.
Section 3: How to Record and Analyze Profit
Just because you are completing sales does not mean that you are making a profit. Dropshipper’s businesses tend to spend a lot on Google and Facebook Ads, social media influencers, as well as on subscription services and paid tools.
Profit margins can quickly shrink with the addition of the transaction fees from Shopify, Stripe, PayPal, and marketplace commissions.
Specialized bookkeeping software helps you analyze actual profit per product, net decrease in profit after all expenses, and which products or sales channels are indeed profitable or draining resources.
Section 4: Readiness for Investors and Other Lenders
Investors and other forms of lenders want to see detailed financial records. Information presented in clean documents is more trustworthy, especially when provided by a financial institution.
Organized financial books allow investors to gauge the business and its management capabilities, making funding more secure.
Features to Look for in an Online Bookkeeping Service
When selecting an online bookkeeping service for your dropshipping store, the decision extends beyond pricing. You want to ensure that the online bookkeeping service complements your processes, systems, and future projections. Here are some areas to focus on:
✅ Integration with E-commerce Platforms
Most dropshippers are familiar with Shopify, WooCommerce, Amazon, Etsy, or BigCommerce. An excellent bookkeeping service should seamlessly integrate with these platforms to provide automated report pulls for order entry, refunds, fees, shipping charges, and tax payments.
This reduces tedious manual bookkeeping, provides enhanced accuracy, and gives real-time access to financial reports. Also, check if they integrate with ad services like Meta Ads and Google Ads for complete advertising expense coverage.
✅ Support for Multi-Currencies
Connecting with suppliers and customers from different parts of the globe means dealing with different currencies. Whether it is paying a supplier in Chinese Yuan or receiving payments in Euros and Canadian Dollars, your bookkeeping solution must have multi-currency features to capture and track these transactions appropriately.
Multi-currency support allows businesses to remain compliant, manage foreign currency liabilities and assets, and assess their true profit margins on international sales.
✅ Tracking of Inventory and COGS
Even though you don’t keep inventory on hand, you still need to compute Cost of Goods Sold (COGS). This involves supplier costs, shipping costs, transaction fees, and packaging, if applicable.
With no reporting on COGS, profit margins can be severely misstated. A bookkeeping service should assist in tracking payments to suppliers, returns, and the real costs tied to each sale.
✅ Automated Reconciliation
Reconciling your bank, Stripe, PayPal, and credit card statements against your accounting records needs to be done on a monthly basis. It’s a tedious process, especially when dealing with manual reconciling.
Accounting software with automated reconciliation allows accurate account matching. This not only saves valuable time but also provides data accuracy when important business decisions are being made, which improves overall trustworthiness.
✅ Financial Reports Prepared for Taxes
Bookkeeping is not limited to every month’s closing, it is important for the end-of-year taxes as well. Your accountant or tax filing service will require specific documentation such as profit & loss (P&L) statements, balance sheets, and detailed, categorized expense reports.
The reports mentioned above will be supplied by a good bookkeeping platform, consider them as tax compliant, even better, they do it automatically and in the correct format, which is less likely to get you penalized by the IRS.
Best Online Bookkeeping Services for Dropshipping Businesses
1. EasyBooks by Easyfiling
EasyBooks strikes as a digital solution tailored for Easyfiling clients, especially those in the US and beyond, via dropshipping. It has direct connections with all the leading eCommerce stores, such as Shopify and WooCommerce. It also has support for different currencies and real people to provide support, accept requests, and respond to inquiries directly.
EasyBooks is also ideal for solopreneurs and small teams with low budgets who appreciate high-touch service. Furthermore, with additional compliance services like EIN and LLC formation, EasyBooks is the ideal solution for startup eCommerce business founders.
2. Bench
Bench pairs great bookkeeping software with real bookkeepers. They have different teams to provide bookkeeping services, from transaction categorization to preparing financial reports. You also get assigned a bookkeeping team.
Bench is not specific to dropshipping, but it is ideal for small businesses that want a clean dashboard view of their finances, accompanied by monthly reports. Bench integrates with Stripe, Shopify, and various bank systems.
3. Xendoo
Xendoo offers online bookkeeping services along with tax services tailored to e-commerce clients. For merchants prepared to expand their business, Xendoos’ real-time dashboards with tax filing add-ons and direct contact with CPAs provide powerful solutions.
Their pricing models are clear since they use flat-fee pricing and also provide QuickBooks and Xero integration, which aids in transitioning from other systems.
4. Bookkeeping with QuickBooks Online
As one of the frontrunners in accounting platforms, QuickBooks provides online bookkeeping services through certified professionals. They work with virtually all payment and sales platforms, making it simpler for businesses that want to use advanced accounting systems in the future.
Customizable, scalable, and more difficult to master than the rest, QuickBooks delivers when it comes to satisfying high-level business needs.
Concluding Remarks
Managing finances can prove challenging for all business models, including dropshipping, but careful financial planning pays off. Decision making, branding, and organization are some of the key aspects that are influenced positively when proper bookkeeping is maintained.
If you wish to concentrate on scaling your store while effortlessly optimizing ads and delighting customers, then an online bookkeeping service will come in handy for you. With the right service, you will no longer have to deal with spreadsheets and cumbersome paperwork!
Looking for a drop shipping savvy with bookkeeping expertise?
👉 Look no further! EasyBooks by Easyfiling are experts geared towards serving online sellers and ecommerce entrepreneurs globally!
Frequently Asked Questions (FAQs)
1. If I’m new to the dropshipping world, is a bookkeeper necessary?
Absolutely! Monitoring cash flow, tracking expenses, and tax preparations are essential tasks made easier with effective bookkeeping. Implementing a robust bookkeeping strategy allows for better business decisions from the get-go.
2. What is the difference between accounting and bookkeeping when it comes to dropshipping?
Bookkeeping is about tracking day-to-day operations like recording transactions, managing expenses, and balancing accounts. Accounting is more peripheral and includes analyzing finances, formulating strategies, and preparing taxes. You can consider bookkeeping as the groundwork, and accounting as additional construction erected on that groundwork.
3. Do online bookkeeping services support multi-channel sales such as Shopify, Amazon, and Etsy?
Absolutely. Most new-age online bookkeeping services, especially those designed for eCommerce, offer integration with top-tier Services such as Shopify, Amazon, eBay, Etsy, and WooCommerce. This enables automated synchronization of sales alongside taxes, refunds, and fees, allowing all activities to be managed from a central hub.
4. How does my bookkeeping track advertising expenditure on Facebook and Google Ads?
Online bookkeeping services can link directly with your ad accounts, and from there, you can either set up for online ad spend reporting or have reports done manually. These expenditures fall under the Marketing or Advertising category, which is critical to determining the cost per sale and net profit calculated.
5. Do I still need an accountant if I use a bookkeeping service?
Usually, yes. Bookkeeping services maintain a neat and accurate record of your financial information. However, they cannot prepare your taxes, consult on your business’s legal structure, or provide any other predictive analytics, all of which require an accountant (or CPA). For convenience, some bookkeeping services provide accounting or tax add-ons.
Swostika Silwal
