E-commerce accounting: Expenses to prepare for and how to track them

Laura Tien January 11, 2024

Article E-Commerce

One part of accounting that e-commerce business owners tend to leave behind is expense tracking and management. Staying on top of your expenses is integral to your profitability, cash flow management and more. Being consistent with this part of your bookkeeping will help save a bunch of time when tax season comes or when you need to analyse financial data.

In this article, we’ll go through the expenses you should be aware of as an e-commerce business owner, the importance of expense tracking and how to go about it. With the right tools and information on hand, you’ll be able to speed up your processes and make better decisions on the go.

Expenses to prepare for as an e-commerce business

The list of expenses that you need to be aware of as an e-commerce business owner can really go on forever. We’ve compiled a list of a dozen of the common ones that you should prepare for.

• Sourcing products: Finding the right products or manufacturing products to sell. 
• Storage: The cost of storing your inventory can include rent, shelves, etc.
• Platform/hosting fees: Whether you host your store on Shopify, BigCommerce or any other platform, you’ll likely have to pay fees.
• Plugins/apps: Plugins or apps that connect to your platform such as for accounting, inventory or marketing.
• Shipping: The cost of shipping products to your customers. Can include boxes, labels, etc. as well.
• Returns/refunds: An inevitable part of most e-commerce businesses is accepting the cost of returns and refunds. Whether it’s a change of mind, damage or a faulty product, always be prepared for this expense.
• Bank/processing fees: You’ll likely have to pay fees for the bank and processing fees payment gateways such as PayPal, Stripe, Authorize.net, etc.
• Marketing /advertising: Most e-commerce businesses will have to invest in an array of marketing and advertising such as paid ads, email, social media, SEO and more.
• Utilities: Don’t forget about the good old internet bill, electricity bill and any other utility you might need to run your business.
• Insurance: Definitely not a top-of-mind expense but still an important one if you want to protect yourself against disasters, theft and more.
• Salaries: As your business grows, you’ll likely have to pay wages or salaries to staff or even to yourself.
• Taxes: Last but definitely not least is taxes. Expect to take care of sales taxes and income taxes. As they say, nothing is certain but death and taxes.

Why should e-commerce businesses track expenses?

Now you know what types of expenses to be prepared for as an e-commerce business owner, let’s go through why it’s important to stay on top of tracking them. First and foremost, the most obvious reason is for your taxes. In most cases, expense tracking is necessary for compliance. Fortunately, depending on your region, many business expenses are tax deductible too!

Next, knowledge is power when it comes to running a successful business. By regularly tracking your expenses, you’re able to better understand your cash flow and overall financial position. You can build more accurate and timely insights that will aid in making business decisions, big or small. Plus, understanding your expenses can help you better plan for the future.

Get a business bank account for your expenses

Though most people already have a business bank account in place, it’s definitely a necessity for your business expenses if you haven’t already opened one. A major part of managing your accounting is keeping your business and personal banks separate. You should aim to never use your business account for personal expenses.

Whether you’re doing your own accounting or you have an accountant, preparing financial statements and meeting tax obligations with a separate business account makes life much easier. If you’re using a cloud-based accounting software, you can automate more parts of your accounting by automatically pulling transactions with a bank feed.

Categorising your e-commerce business expenses

You might know that the five high-level categories for your financial transactions are assets, liabilities, shareholder’s equity, revenue and expenses. However, within expenses, it’s useful to have sub-categories. You can set up these as sub-accounts when setting up your e-commerce chart of accounts in your accounting software.

Having sub-accounts will allow you to create more detailed financial reports. For example, you can have separate accounts for each form of marketing whether it be paid ads or email marketing. Then, when you analyse your e-commerce business’s income statement, you can better understand how changes in campaigns have affected your sales.

How to keep track of your business expenses

Expense tracking doesn’t necessarily have to be complicated. Many cloud-based accounting software have basic expense tracking functionality embedded within them. You can keep a copy, whether digitally or physically, of all receipts and then manually enter them into the accounting software. You could have a bookkeeper do this as well.

If you have a tonne of receipts to manage or just want a less manual process, you can look into expense tracking apps. These will typically integrate with your accounting software and allow you to scan physical receipts, automatically track bills and more. If you have employees, the team can use an expense tracking app for faster approval and reimbursement.

Key takeaways on e-commerce expense management

Expense tracking for your e-commerce business might not be a major part of your accounting processes but it still has an important place. Once you have the right systems and processes in place, you’ll find it doesn’t have to take a long time. Then, you can reap the benefits of having your books up-to-date and accurate!