Track expenses and keep books
What is bookkeeping can how to do it efficiently
The foundation of keeping on top of your finances is tracking and categorising the day to day transactions of your business. This is known as bookkeeping and is the basis for:
  • Preparing your VAT and annual returns
  • Keeping track of tax deductible expenses
  • Getting valuable management information like your monthly Profit and Loss
In the UK there is a legal requirement to keep records, e.g. receipts and invoices, for 6 years. The goods news is HMRC deems electronic copies acceptable.

Where to start with tracking expenses and revenue?

From the very beginning, you need establish a system for tracking and storing evidence of expenses and revenue. There are a couple of approaches outlined below and which you choose depends on your priorities and the state of your business.

Tracking expenses and revenue in the very beginning

Store a digital copy of of your expenses somewhere online, e.g. Google Drive, Box, etc, so that it cannot be lost. In the UK, digital copies are acceptable and need to be stored a minimum of 6 years.
Tip: You don't need to categorise these expenses at this stage as you will have the option of later uploading these in bulk if your accountant is using a sensible invoice capture tool like Receipt Bank.

When should I get a bookkeeping solution?

Solutions like Xero, Quickbooks, Sage Online, etc are there to save you time and provide a system for handling your bookkeeping. You do not need one from the very start, but they are highly recommended as they will save you significant time if set up correctly early.
Once you are making more than £85k revenue (incidentally the domestic VAT registration threshold), you have to comply with the Making Tax Digital requirements, at which point such a bookkeeping solution is a necessity.

Can I do bookkeeping myself?

Yes, you can do this yourself. You need to be able to consistently and correctly categorise all transactions, as well as capture VAT. There is a slight learning curve and ongoing time and effort, but it is achievable for most.
If you decide to go this route, there are two efficiencies we strongly recommend:
  1. 1.
    Use a sensible invoice capture tool like Receipt Bank or Hubdoc (we favour Receipt Bank) for making tracking and categorising your expenses quick and less error-prone.
  2. 2.
    Use a tool like Link My Books to connect your ecommerce platform data with your bookkeeping solution (ask us about our LMB set up service) - read more on reconciling ecommerce income below
Warning: when handling bookkeeping yourself you should be confident that you are doing things correctly and efficiently. There are a number of risks you should understand and guard yourself against:
  • Wasting your own time. It is not uncommon for us to encounter sellers who have ended up spending tens of hours each month handling books, time that could be better spent growing you business
  • Capturing VAT incorrectly. This can result in underpaying VAT and getting a surprise bill, overpaying and harming your cashflow, and fines for incorrect submissions as well as time costs if this triggers a VAT investigation
  • Failing to keep tidy books. You have a legal obligation to keep tidy records as the director of a UK business. Aside from fines, if your books are untidy, your accountant will require the bookkeeping to be redone correctly before submitting accounts.
Do not be discouraged! These are serious risks and you should be fully aware of them, but if you choose the right tools and ask for advice early on, you are in a better position to manage these risks or opt to have a professional handle it for you.

Template expense and mileage tracker

Here is a template tracker you can use for tracking your personal expenses (plus business expenses if desired) as well as your mileage.
Ecommerce Accountants - Expenses Tracker.xlsx
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Expenses and mileage tracker

How do I reconcile ecommerce income?

For an ecommerce business this is a little trickier than for a traditional business, as your income will be commingled with platform fees and there will be hundreds or thousands of transactions to categorise.
There are generally two approaches available to you depending on your objectives.
Outsource to an ecommerce accountant
DIY using software
If you want to save time and not learn a new bit of software, then you can find an accountant/bookkeeper specialised in ecommerce.
They will either:
  1. 1.
    Use software that bridges ecommerce platform data with bookkeeping software, or
  2. 2.
    Have internal software/expertise that lets them work with the raw data
At Ecommerce Accountants we have deep expertise in both approaches. This is crucial for multi-channel sellers, ensures continuity for taking on clients who have set up using one of these software packages, as well as providing a secondary check of accuracy.
Warning: There are a growing number of accountancies that claim expertise in ecommerce but in fact have only recently started marketing to this sector after recently discovering ecommerce bridging software.
We often take on clients where we have to fix the errors of such accountants. Common pitfalls are misconfiguring tax rules and double paying VAT in the UK and Europe, missing allowable expenses, or failing to capture VAT requirements and receiving fines.
Check out our due diligence checklist for appointing an accountant for a list of questions worth asking any accountant you are evaluating.
There are good bits of software out there for some of the more popular platforms.
If selling on Amazon only, your best bet is Link My Books, which gets consistently positive reviews and is broadly considered reasonably priced, e.g. $33 for 1,000 orders per month.
If selling on Amazon and Shopify, or Shopify only, then A2X is probably your best bet, but more expensive, e.g. $49 for 1,000 orders per month, which is more than the equivalent cost for us to handle bookkeeping the same volume of orders.
If you are in need of help configuring any of these bits of software, you can reach out to us via our contact form.

Getting a bookkeeper to handle your books

Once you are up and running, you can have a professional set up your bookkeeping and handle the ongoing work to save you time.
If you use our bookkeeping service, we will set up your bookkeeping solutions, i.e. give you Xero and Receipt Bank, integrate your bank account(s), get and process your revenue data for you, and take care of matching your expense invoices and receipts to their corresponding transactions. We'll also take care of categorising VAT on revenues and expenses when this becomes applicable.
Whatever you do, make sure to pick a qualified bookkeeper that actually understands your business. The risk of not doing so, is that you pay for bookkeeping to be done, and only at the point of a VAT return or annual return, do the errors surface, at which point you will have to pay a professional to redo your books.
A good test is to ask your bookkeeper to explain the process. A bookkeeper who has relevant experience should be able to explain a complex process in terms that are easy to understand and without using lots of jargon. They should be able to tell you the reports to use and how to process them, otherwise this job is likely to fall on you, you are paying time and money for them to learn the platform, or worse, errors creep in.
Hint: This can save you a lot of time in the long run, but in the very beginning, if cashflow is a higher priority than saving time, you may decide to delay taking on this service (or if your business bookkeeping is simple, you may decide to keep it in-house indefinitely).
Last modified 9mo ago