Running an e-commerce business is no mean feat. Between keeping track of inventory and keeping your customers happy, you’ve got your work cut out for you. But did you know that accounting and analytics can help?

Oftentimes, accounting is begrudgingly introduced to ensure you are tax compliant but really, accounting and analytics can help you with so much more than this. By getting an accountant on board or investing in accounting software so you can keep track of the vital numbers yourself, you are better equipped to handle any cash flow issues, improve your profitability, and plan for the future. 

E-commerce businesses tend to have a high number of transactions every day. When cash moves into and out of the business so quickly, it can be tricky to keep track of your profitability and make accurate projections. Plus, managing inventory is particularly difficult when orders can be placed instantly on your website. 

So, how can you set up your accounting and analysis? In this article, we will take you through some top tips to make the most of your financial and operational data and turn that data into dollars. Let’s dig in.

Get your accounts in order

The first step to making the most of your data is to ensure that your data is being recorded correctly. If you begin analyzing inaccurate data, any decisions you make based on that data will likely be flawed. 

Choose the appropriate accounting model

There are two models for accounting - cash and accrual basis. Both have their uses. It all depends on the kind of business you operate. 

1. Cash tends to be a useful basis if your business is an early-stage startup or if you are a sole trader. Cash basis accounting records your income and expenses when they are paid or spent, so you can see the money you have at the ready at any given time – if you’re on top of your books.

2. Accrual basis is a little more complicated but it gives you more insight into your financials for the long term. So, if you are a more established business, this may be the model for you. The accrual model records income and expenses when you receive a bill or send out an invoice. This gives you a more accurate view of your business’s performance and makes it easier to identify profitable months. If you use cloud-based accounting software, you may have the option to switch between both views, as is the case with reporting and analytics software, Syft Analytics. In this way, you can easily assess your financial performance at a glance.

Find the right software

There are a plethora of software platforms available in 2023 to help make your accounting work more efficient. Cloud accounting software has gained a lot of traction in recent years - and for good reason. With the help of this software, you can automate a lot of tedious tasks, from data entry to invoice generation, and with data stored in the cloud, you are able to access it from any device with an internet connection. 

Plus, if you get a cloud accounting software account, you will always have access to the latest and greatest version of the tool, with new features available immediately. 

With the right accounting software, you can save a lot of time and hassle, and your business can get by with a smaller finance team, but how do you decide which software to go for? Finding the right accounting software for your business can be tricky. Top contenders include the following:

• QuickBooks Online: This is accounting software that stores your data from your bank account, Shopify, or other e-commerce sites in the cloud, allowing you to run your business from your PC, Mac, tablet, or phone. You can use QuickBooks to send custom quotes and invoices, track your sales and expenses, and sort receipts in one place. You can also build better business insights by creating reports and collaborating with your advisor to see how your business is doing and to get ready for tax time.
  
  Note: QuickBooks Online integrates with Shopify, WooCommerce, Amazon, Squarespace, Etsy, BigCommerce, and Zapier but only allows up to 25 users.

• Xero: This software integrates with your e-commerce software and helps you automate your admin and work from anywhere at any time. You can capture bills and receipts via email, scan files from your phone, connect to your bank for automatic bank feeds, and choose from over 1000 apps in the Xero App Store to streamline other tasks.
  
  Note: Xero provides unlimited users and integrates with all the above software.

• Zoho Books: This tool integrates with your e-commerce software to help you negotiate deals, raise sales orders, create and send invoices, and handle the more mundane accounting tasks. With role-based access, you can add your colleagues and your accountant to your organization so they can log time, view reports, or manage your accounts. From receivables to payables, and inventory to banking, time tracking, contacts, and reports, Zoho can help. You can also add more of Zoho’s 50+ apps to help you manage other aspects of your business.
  
  Note: Zoho Books allows for up to 15 users with the option to add more at an additional cost of $3 dollars per user per month, and integrates with Shopify, WooCommerce, Squarespace, and Zapier.

• Wave: Wave is financial software that helps you to speed up your invoicing, payments, accounting, and payroll and has a dedicated in-house team of bookkeeping, accounting, and payroll coaches. You can connect your bank account and credit cards and then monitor your cash flow and track your income and expenses with ease.
  
  Note: Wave is free with unlimited user access, but only integrates with Zapier, no other e-commerce software.

Of these options, QuickBooks Online and Xero have the most to offer overall. Both software providers integrate with SaasAnt to automate the importing and exporting of transactions, removing the pain of manual data entry, and both of them also integrate with Syft Analytics, which can help with all your reporting and analytic needs. 

Pro Tip: Most cloud accounting platforms offer a free trial period so you can assess whether the software suits your needs and is worth the full price for your business needs.

Ultimately, whatever software you choose should be used to take some of the hassle and monotony out of your bookkeeping and other accounting processes so that you can spend more time focusing on your business.

Perform an internal audit of your data

Once you have settled on the best accounting software for your business, you may want to perform a data review to ensure that all your transactions are pulling through correctly and that there aren’t any errors - or any potentially fraudulent transactions - in your accounts. Tools such as Syft’s Audit Add-On help you assess this by using machine learning to analyze all your accounts and transactions and detect any anomalies, duplicates, dormant accounts, or unusual behavior, all of which could indicate fraud or error.

Once you can be sure that your accounts are accurate and reliable, you can begin to unpack the data within them and find the real gold nuggets. 

Dive into the data

Analytics is all about detecting patterns and trends in your business so that you are equipped to take advantage of opportunities and make better decisions. By measuring and exploring the data you have available to you from every transaction, you will be able to decide where to spend or save your money, when to restock your supplies, and how to make the most of your operations so that you can turn data into decisions to grow your business, attract more customers, and generate more revenue.

Gathering information about your business means that you can:

• Produce detailed and powerful reports to help you measure your business’s financial health;

• Determine the success of your marketing campaigns;

• Identify your best sources of customer acquisition;

• Monitor your cash flow so you know when to save or invest, 

• Determine which products and services are typically bought together so you can offer cross-product promotions; and 

• Use customer behavior data to personalize your offerings and your website. 

However, to get to this level of insight, you first need to figure out which key performance indicators (KPIs) drive your business and have the biggest impact on its success. It is usually recommended that you focus on around five top indicators based on your unique business profile, considering where you are going and how you will reach your goals. 

Determine what your critical KPIs are

What analytics are useful to your e-commerce business? While each business is different, e-commerce businesses will typically benefit from focusing on the following KPIs:

• Traffic to your website;

• Conversion rate;

• Gross profit margin;

• Shopping cart abandonment rate; and

• Repeat customer rate.

Once you’ve decided on the KPIs that drive your business, you can begin to analyze them and unpack trends or seasonality.

Unpack trends and seasonality

If you notice that traffic to your e-commerce website appears to peak over holiday periods, you may have picked up on a critical opportunity for increased sales. You may want to tap into the holiday seasons, offer themed specials and bulk order discounts, or amp up your marketing leading up to these times. 

You could also make decisions based on the repeated presence of certain types of customers - certain demographics that appear to be particularly enamored by your woolen sweaters say. In this way, you can begin to plan how to segment your customers, target different segments in your marketing and sales efforts, adapt to changing customer demographics and expectations, and grow your customer base.

Whatever the case may be, you need to determine how often you check on your KPIs to find the relevant trends for your e-commerce store. So, you may consider the following:

• Weekly metrics: to evaluate social media impressions and engagement or website traffic.

• Bi-weekly metrics: for larger sample sizes that are less influenced by the variations that can occur within a week’s time, such as average order value, cart abandonment, or cost per acquisition.

• Monthly metrics: for KPIs that require a longer data window that is impacted by traffic patterns or marketing patterns, such as email open rate, reach, multichannel engagement, and other micro-conversions

• Quarterly metrics: strategic metrics that reflect on the performance of the longer-term activities implemented for growth and success, such as email click-through rates, subscription rates, or customer lifetime value.

Turn data into actionable insights

Lastly, once you’ve gathered all the vital information, it’s time to put it to good use. This is where it might be helpful to consult with an accountant to unpack your KPIs' full meaning and potential. Put together into a comprehensive report, you can begin to see the full picture of how your business is performing and work to plan for the future, from cash flow forecasting to decisions around where to spend your money in terms of marketing or product development.

Author bio

Alex Hoffman is the Engagement Manager at Syft Analytics. She is in charge of Syft’s content strategy across all channels, including the education platform, Syft Campus. Alex enjoys creating helpful, educational, and entertaining content to help you make better business decisions.