5 Essential Accounting Practices For Online Retailers

Starting a retail store online is an exciting venture for most business owners, mainly because it helps you reach a vast niche audience while keeping your physical footprint and cost attached with it incredibly low. The ease that digital technologies have provided to start an online store with options like Facebook marketplace, Shopify, Amazon, eBay etc., also lead many non-committed sellers to set-up an online presence that they end up abandoning within the first few months. But there is a big chunk of people, who realise the opportunity and potential of online retail stores. This blog aims to help these retailers, so that by following these practices they can sustain & grow their online business. Here are 5 basic practices & concepts that you need to opt as an online retailer;

  • Get an accounting software
  • Watch your Cash flow
  • Track your Inventory
  • costs, expenses, break-even point & profits
  • Tax Compliance



Picking just the right accounting software for your online marketplace business can be a difficult decision to make as it depends on your e-commerce needs, compatibility with the website and sales process. I narrowed some options for you that you can pick and choose from depending on your business’s accounting needs.

                Xero – It is the best software if you’re an Amazon seller/FBA trader or an eBay seller/drop shipper. The following features makes this software most suited for online markets and sellers;

  • Easy reconciliation for Amazon transactions
  • It offers cash flow integration with Amazon Seller
  • Your Inventory can be synched with the software

“Xero has made a really big difference in helping me keep my finances organized. It makes my life easier by making it very easy to get invoices out to customers.”– Ade, founder of Nubian Skin

                QuickBooks – Due to its popularity, most accountants are familiar with the software. It is a great alternative to Xero. The following features makes this software most suited for eBay sellers or drop shippers.

  • Easy to use: it has a simple set up process, and easily accessible once set up.
  • Integration: Your eBay seller or drop shipper account can easily be linked to QuickBooks app or desktop.
  • Excellent Support Team: A very prompt response will be given if you have a query or are having any difficulty with the software.

“We use the QuickBooks app when we’re visiting customers… we can now send a quote or invoice on the spot.” – Amanda, Barking Mad

If you want to try the software before making an investment in it for long term, a free 30- day trial version is available for just that.

                FreshBooks– FreshBooks is one of the rare accounting software that has been able to achieve the balance between accounting features and invoicing tools. It is definitely the software for online market businesses. Some other software have very good invoicing feature but those don’t usually have good accounting features. Similarly, there are numerous accounting software better than Freshbooks but they just aren’t strong at the invoicing tools. FreshBooks specifically offers simplified invoicing tools that make the software attractive to online businesses that need to send invoices as a part of everyday business operations.

“It’s beautiful and really well designed. The invoicing, accepting online payments and keeping track of expenses couldn’t be simpler.”- Roman Mars, Creator & Host Of 99% Invisible

FreshBooks offers all the necessary accounting and invoicing features that an online marketplace owner or a freelancer may require. You can manage all the financial operations from a single dashboard. Some of the main features of the software are;

  • Unlimited invoices
  • Unlimited time tracking
  • Auto syncs with bank accounts
  • Financial reporting
  • 200+ integrations
  • Streamlined payment collection
  • Auto-payment reminders
  • Project tracking
  • Payroll processing

If you think these software may not be right for your online marketplace, you can always try a free trail for other available software online. But before you pick n’ choose an accounting software (link oct’s blog), make sure it has all the features to meet your online business’ accounting needs.


A common mistake that can cause you to lose track of your finances is not separating personal expenses from business expenses. A lot of home-based / micro business owners think that they know where they are spending and so they can manage both finances from the same bank account. However, if you have an online marketplace, you need to get a separate business account for all your business finances. Keeping separate accounts will help you have a clear picture of your cash flow.

“Never take your eyes off the cash flow because it’s the lifeblood of business.”
—Sir Richard Branson

Cash flow is basically money coming in and going out of your business. Keeping track of your cash flow will help you dodge away many problems that you may encounter while running an online marketplace. A balanced cash flow not only helps you avoid problems but also contribute to business growth from the very start. There are two basic practices that you need to follow in order to track and keep your cash flow balanced.

  • Don’t Make Early Payments – Many business owners think that early payments is a good idea, I wouldn’t disagree but it most definitely isn’t a good idea if you don’t have enough to cover other expenses. Let me explain this by an example; you have to pay your manufacturer in 30 days, your online order will be transferred in the next 10 days and you need to pay the employee in 6 days. Instead of paying your manufacturer early and waiting for your online order to clear to pay your employee, it would be better if you just pay your manufacturer on time so that other payments can also be made timely without disrupting the cash flow.


  • Prepare for Unexpected – Unexpected business costs are a part of running an online business, or any business. While you cannot avoid these unexpected bumps, you can most definitely prepare for these in advance. Always keep a “rainy day fund” aside, so that if sudden cost arises, you can take care of it without disrupting the cash flow.For instance, what if you’re manufacturer can’t send you the product on time. But, their refund policy is 30 days, and your only option is another manufacturer. If you have a reserve, it will prevent a deficit cash flow.

“Being properly prepared is one of the biggest assets in business.”

Keeth Smart

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                90% of small businesses in Northampton work on a tight budget and with minimum resources. In this scenario, your business spending must be well accounted for. To avoid theft/careless use of goods, it is always a good idea to implement proper inventory controls such as;

  • Monitoring goods usage
  • Regularly conducting inventory audits to avoid shrinkage
  • Allowing limited access to the inventory

Typically, online market businesses have a lot of money tied up in inventory and in the earlier stages of business, cash is constrained. So, it is important to have a good grasp on inventory management so you can avoid problems like “shrinkage”. Shrinkage is when your inventory has less number of products than its supposed to have. For example; you had 50 articles of clothing in your inventory. You sold 40 out of 50. You are now supposed to have 10 articles remaining in stock, but there are only 9 articles. This is called shrinkage. You can lose inventory as a result of stealing/ damage / double order etc.

One interesting thing about Inventory is that its value may change with time. For Example; you have ten dresses worth £100 each, currently the value of your inventory is £1000. Then you put up an annual sale and now each dress is £70, the value of inventory will automatically decrease to £700.

Most accounting software come with an inventory management feature, this can help you monitor your inventory more effectively & accurately. Even if you don’t want to invest in accounting software, inventory management software is also available separately which is probably less pricey. This is how inventory tracking can help your other than avoiding shrinkage;

  • Inventory platforms should streamline inventory, orders, and data across multiple channels and include operational aspects of your clients’ businesses from their shopping carts to the accounting information.
  • Through inventory platforms, you have the ability to pin-point slower moving inventory, which will allow the company to focus its selling efforts on higher-profit products. Separating winners from loser will help with your inventory management and allow you to focus on the bigger picture.

“The Profit and Loss Statement tells you a lot about how your business is doing. It can also help you to determine ways that you can go about saving money so that you get to bring more money home! Basically, the P&L statement measures all of your income sources versus all your business expenses for any given period of time.”

Darren L Johnson

  • Cost Of Sold Goods

                   Cost of goods sold is the expense directly tied to the products you sold. This is the inventory sold plus how much it cost to make that inventory. For Example; you have a business of electrical fans. The parts cost you £100, you pay someone £25 to put together the parts, and the packaging cost £10 and has a shipping fees of £5 when ordered online, so, the total cost of the sold good will total at £140. Having accounting software linked to you e- retail store will make the process automated and you wouldn’t have to worry about the complexities every time the cost of sold goods goes up or down.

  • Fixed Expenses

Any expenses that haven’t already been added to the cost of sold good but do effect the cash flow & profits of a business fall in this category. Basically fixed expenses are expenses that you have to bare regardless of how many sales you make during a month, such as; Rent, Utilities, salaries, tax etc. If ay expenses such as utility bills increases or decreases from month to month basis, just use and average at the time of financial planning.

“Don’t ever let your business get ahead of the financial side of your business. Accounting, accounting, accounting. Know your numbers.”

Tilman J. Fertitta

  • Break-Even Point

                    Your online retail store’s break-even point is the revenue that you generate from selling your goods online that equals the cost of sold goods and fixed expenses. Which means it is the point when you are not making any profit but also aren’t bearing any financial loss. It is important to know the break-even point in order to plan ahead to meet the costs. Let’s consider the previous example of the electrical fans retail store. Your need to cover the cost of sold goods (labor, manufacturing, packaging, shipping ) and you  also need to cover the fixed costs (rent , utilities, tax etc.) from the money that your business generated from selling goods online.   Once you know your break-even point, you can set a fixed number of sales that you need to make in order to meet that.

If you think the break-even point seems too unattainable for your business, you may want to reduce either the cost of sold goods or increase the profit margins to meet it.

  • Profits

                   Any sales that you make after meeting your break-even point, you are generating a profit from those. Tracking your sales is a great idea to know when you meet your break-even point and when you start generating a profit or to know when you need to start making more effort to generate more sales as your business is failing to meet the break-even point. Google Analytics is a great tool to track your sales online.

“You have to keep your books: how much money you made, how much money you’re spending, what you profited, and what you’re gonna need for expenses.”

Karen Civil


                A critical component of accounting for e- retail businesses is staying well-informed of regulatory compliance. Instead of investing your time to keep track of all the regulations and changes, it is better to hire a professional to do it for you. Accountants are more aware of the regulations and your business structure etc.  This process when done right sets the tone for your financial planning, investment plan and budgeting for the year ahead.


            Accounting for an online retail store isn’t much different from any other retail business, but there are things that need to be taken care of closely in order to keep your business running smoothly. Differences such as payment procedures, shipping costs etc. add to the complexity of accounting for an online retail store but the good news is you have very easy to use accounting software, analytics and professionals to help you through the process. Here is a quick recap of the things you need to understand and take care of when running an online retail store.

  • Get a well suited accounting software and integrate with your website
  • Watch your Cash flow
  • Track your Inventory
  • Understand the basics: costs, expenses, break-even point & profits
  • Hire an accountant to stay on top of Tax Compliance


“Accounting does not make corporate earnings or balance sheets more volatile. Accounting just increases the transparency of volatility in earnings.”

– Diane Garnic


Looking for a new accountant?

If you looking for some assistance with your accounting services, we’d love to hear from you. Call our friendly team now on 01604 330129.

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Why not check out our FREE guide:

6 Secrets to Growing your Business During a Recession

By reading this guide you will discover:

  • How important systems and a team are in growth 
  • Why knee jerk reactions can cause lasting damage
  • How people will change the way they buy

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