Top 3 Disadvantages of Manual Bookkeeping in Ecommerce

Bookkeeping involves recording and tracking the financial transactions of a business. You can use automated bookkeeping software or old-fashioned pen and paper to track your financial data. Many business owners opt for automated systems, but there are still some that prefer to use manual systems. However, manual bookkeeping in ecommerce comes with several disadvantages.

Typically, a manual bookkeeping system has multiple account ledgers (cash, accounts receivable, inventory accounting, accounts payable, sales, a general ledger, etc.), and all transactions must be recorded in their respective ledger. Sometimes, this means several different ledgers will need an entry for one purchase. For example, if you sell an item from inventory, you'll need to record the sale in the sales ledger, the reduction of stock in the inventory ledger, and the balance due in the accounts receivable ledger (or the cash receipt in the cash ledger). The ledgers need to have a running balance and are used to prepare the financial statements.

There are many different disadvantages that come with a manual bookkeeping system—continue reading to find the three most detrimental to your ecommerce store.

1. Time Commitment

Manual bookkeeping will require a large amount of your most valuable resource: time. Many business owners—especially small businesses and ecommerce sellers without the necessary employees to disperse the load upon—find that time management is one of the most challenging parts of running their business. Managing your own bookkeeping can be incredibly time-consuming without the proper background knowledge, and hiring a bookkeeper can be costly. Choosing manual bookkeeping will require even more time and understanding of more than just basic accounting.

You'll need to understand how double-entry accounting works, which ledgers will require an entry for each transaction, and which accounts will fall on your balance sheet or income statement, to name a few. Learning this system will require a significant time commitment that will inhibit the growth of your business.

2. Risk of Inaccuracy

The risk of inaccuracies with manual bookkeeping is extremely high—transposing numbers, adding or subtracting incorrect amounts, or forgetting to record a transaction is almost guaranteed.

When copying sales numbers from reports or transactions from a bank account, it's easy to skip a line by mistake. As you're totaling monthly expenses from your prepared worksheets, you may type a "7" rather than a "4" into your calculator. These kinds of mistakes will produce inaccurate financial statements and records. Financial records that are incomplete or inaccurate will make it difficult (and maybe costly) when it comes to sorting your books or preparing your taxes.

3. Storage and Filing System

U.S. taxing and other agencies have specific document retention requirements. Depending on the document, the retention period could be one year, three years, seven years, and even permanently. Many businesses keep accounting records for seven years after the fiscal year-end. That's a lot of paper and source documents to keep around!

You'll need to set up a system to file and store that information securely in case you are selected for an audit by the IRS or need to refer back to a prior year. Depending on the volume and nature of the transactions and source documents, this can take up quite a bit of space. And then, when the retention period has passed, you'll need to dispose of the documents securely to prevent confidential information from being exposed.

Conclusion: How Automated Bookkeeping Can Help

Manual bookkeeping requires meticulous attention to every detail, from recording transactions to mathematical calculations to storing documents. Utilizing an automated bookkeeping system and accounting software can help eliminate many disadvantages of a manual bookkeeping system.

Automated bookkeeping systems can automatically sync all your financial data by importing transactions from your bank accounts, credit cards, and sales platforms like Shopify, WooCommerce, Amazon, and many others. They are designed to calculate balances and totals automatically, so there's virtually no risk of inaccurate mathematical calculations. Unfortunately, document retention requirements will apply no matter your bookkeeping system, but digitally storing your documents is much easier when using an automated system since everything is already on your computer. With an automated system, your financial statements are only a few clicks away and available on-demand—even for prior years, so you can refer back whenever you like.