We have a growing number of clients using ecommerce in their business model. They are sometimes a pure-play ecommerce – only making sales via online storefronts – but quite often they will be some form of brick and click – physical sales location as well as online platforms. Common online channels we see used include Shopify, Magento, WooCommerce, and Amazon.
Ecommerce and accounting SaaS products
There’s no doubt that ecommerce is here to stay. Global ecommerce revenues were estimated at $3.914 trillion in 2020, having tripled over the preceding six years. Ecommerce is a great way to sell because it typically has low overheads and relies heavily on automation for tasks such as recording and administrating the sale, sending goods, and payments. Ecommerce systems work really well with cloud accounting products like Xero, allowing you to streamline your financial management.
Although ecommerce and accounting integrations exist, it is not just a case of flicking a switch to connect the two systems. It’s crucial that you find a way to integrate your solutions that works the way you need it to, bearing in mind how your business and your accounting are structured. To add further complication, there are various options available when connecting software (direct connections, middleware, custom-developed API integrations) so you need to look at your technology stack as a whole to choose the best option.
Out of the box integrations: an example
Here’s an example of how things can get out of hand very quickly. Let’s say you sell 100 products a day on your ecommerce site. If you simply switch on a Shopify-Xero connection without any additional preparation, you could suddenly have 100 sales invoices coming into Xero every day. That’s thousands of additional items your bookkeeper needs to reconcile each month, which will significantly increase the number of hours they need to put in. This isn’t very efficient.
Imagine that you also use a variety of payment options on your ecommerce. You may have Stripe, PayPal, Elavon. The bookkeeper isn’t simply reconciling each invoice to make sure the VAT is correctly accounted for, they are also having to go back and check that the payment of the invoice is correct, which may be via one of the payment gateways, but could also be store credit, discount vouchers, cash, or loyalty cards in some businesses. Because there is often a delay before payment companies send you the money, and as they usually send batch payments – which are likely to include transactions from different days and have fees deducted – this can end up in a huge unravelling job for your bookkeeper.
What does this mean? In order to connect your systems (and yes, they absolutely should be connected!) you need to clearly lay out what is required and what the end result should look like. Then you will be able to develop a proper design for your system that is practical, effective, and efficient.
A designed integration is a good integration
A customised integration might take the 100 sales invoices I mentioned above and instead produce a single weekly invoice covering all the sales made. Within this invoice will be line items for the different VAT rates charged and reconciling this will be very straightforward for the bookkeeper. You may even look at the different payment options being used and simplify these in the interests of efficiency.
Designing these systems is something we’re doing more and more for our clients. While some businesses would prefer to avoid this kind of upfront cost, in every instance we have created a far more manageable way of working that has produced significant savings over the cost of unravelling ecommerce reconciliation at the end of the financial year. It’s all part of being proactive and getting financial management right from the start, which will ultimately let you grow your business – and your profits – with much more ease.
It may seem that paying for app advisory in the early days is too big an investment, but you will end up paying more than that at the end of the year when your accountant has to wade through a rising tide of chaos to prepare your accounts.
When thinking about system design, people often get tripped up by the fact that there is almost inevitably going to be overlapping functionality once you use more than one software product. The trick is to decide which functionality you are going to use in which product. As an example, if you are building financial reports in Xero, you may naturally feel that Xero is also where you would centralise sales reports. But Shopify already has excellent reports on sales by product, margin by product, etc. So bringing all that information into Xero may well be completely unnecessary.
How are integrations achieved?
As I mentioned above, there are three possible ways that ecommerce and accounting solutions might be connected.
1. Direct connection
Although not typical, there may be a click-and-go connection between your systems. Even if there is, I still recommend you take a good look at how this will play out in reality before deciding whether it’s right for you. One such connection is the WooCommerce connection for Xero.
Middleware is integration software developed by a third party, allowing different systems to talk to one another. Typically, these are fairly inexpensive but also come with a fixed menu of information that can and can’t be shared, so they do not suit every business. A common middleware option we use is A2X, connecting Shopify with Xero.
3. Custom API integration
Today, many SaaS products come with an Application Programming Interface (API), which at its simplest is a set of procedures, protocols, and tools that allows for data to be shared from one app/programme to another. These APIs allow you to create a tailored integration between two apps, so you can design the exact integration you require. You can either hire a developer or use one of the new API automation platforms that are springing up and build your own integration. One platform like this we have used in the past is Apiant.
Invest early and reap the benefits of a planned system
We regularly unravel (a word I’ve used a few times already, but for good reason!) accounts for ecommerce businesses that had put their tech stack together piece by piece with no overall plan and no overview of how everything was working. The result has invariably been a system where data was duplicated in some areas while in other areas there were big gaps in information. The business owner had either become disillusioned with the system and only used the basic day-to-day functionality provided or had spent huge amounts of time doing tasks that should have been automated.
It may seem that paying for app advisory in the early days is too big an investment, but you will end up paying more than that at the end of the year when your accountant has to wade through a rising tide of chaos to prepare your accounts. It also means you could have missed out on some great opportunities or under-optimised your sales processes.
I thoroughly recommend you get input from experts (like us) who understand this area and can help plan your system in advance. There are some excellent feasibility, business development, or Lean project grants out there that you may be able to use for this purpose. Talk to your Local Enterprise Office (LEO) or Enterprise Ireland and see what your business might qualify for. Good luck!