ABCs of Financial Reporting: Simplifying Reports for Ecommerce Businesses

Understanding the intricacies of financial reporting is essential for steering ecommerce businesses toward success.

This article aims to demystify the concept of financial reporting in ecommerce, exploring the significance of the three key financial statements, introducing the tools you’ll need, and teaching you how to analyze the data.

What is financial reporting in ecommerce businesses?

Financial reporting serves as the compass that guides decision-making, offering insights into the health and performance of an ecommerce venture.

It involves systematically recording, analyzing and communicating financial information through key statements including the income statement, balance sheet and cash flow statement.

Adhering to accounting standards is crucial for maintaining compliance. This involves keeping your financial data up-to-date and accurate. Beyond compliance, precise record keeping will allow you to assess your company’s financial health, track its trajectory, and identify potential risks or opportunities.

What are the three key financial statements?

The key financial statements offer a comprehensive overview of the business's financial performance, position, and cash flows.

1. The income statement

The income statement, otherwise known as the profit and loss statement (P&L), gives you insight into your regular operations and profitability. It shows how your business is doing over a certain period, such as a month, quarter, or year. On it, you’ll find a summary of your revenue and expense activity to give an indication of your business’s financial performance.

2. The balance sheet

The balance sheet gives you a snapshot of your financial position at a single point in time. You’ll find your business assets on one side, and your liabilities and equity on the other. Assets are the items you own, such as cash, inventory, and accounts receivable. Liabilities include money you owe, such as taxes, loans and accounts payable.

3. The cash flow statement

Finally, the cash flow statement gives an overview of your profitability based on the actual cash flowing in and out of your business over a certain period. It’s key for assessing your liquidity. The statement is broken up by cash from operating activities, investing activities and financing activities.

How do the three financial statements connect?

Reviewing your financial statements collectively provides a holistic view of your ecommerce business’s financial health and growth potential. The balance sheet outlines assets and debts, the income statement details profits and losses, and the cash flow statement shows liquidity.

Interconnectedness between these statements means changes in one will impact the others.

For example, increased profits on the income statement can fuel the cash flow needed for acquiring additional assets on the balance sheet. Conversely, heavy investments may reduce cash balances, as seen in the cash flow statement. Regular analyses are vital for making informed financial decisions that sustain growth for your ecommerce business.

Tools to help you simplify your financial reporting

To streamline financial reporting processes in your ecommerce business, consider using the following tools. We recommend working with an accounting professional as well to ensure you meet compliance requirements. Additionally, certain accountants will advise you on the best app ecosystem for your business.

• Accounting software: To start, a cloud-based accounting software such as Xero or QuickBooks Online should act as the center of your app ecosystem and your main source of truth. These can automate bookkeeping tasks, track transactions, and generate financial reports efficiently.
• Amaka: To connect your ecommerce platform to your accounting software, use an ecommerce accounting integrator such as Amaka. Automatically sync all sales and payments transactions and speed up bank reconciliation.
• Invoicing app: Sufio automatically creates and sends invoices for orders on Shopify and BigCommerce. The app can also send copies to external accountants or warehouse managers, saving you time and money in the process.
• Expense management software: Tools like Expensify or Zoho Expense automate expense tracking and reporting, reducing manual efforts and ensuring accuracy in financial records.
• Business intelligence (BI) tools: BI tools like Tableau, Power BI, or Looker enable advanced data visualization, making it easier to analyze complex financial data and present insights in a professional manner.

Data visualization for better clarity

Now that you have the right tools in place and your financial data is flowing between them, you can start using data visualization.

The key financial statements are necessary for compliance and can serve as a foundation for building financial insights. However, being able to see your data as visual, interactive dashboards can better support real-time decision making.

1. Choose a visualization tool: Select a user-friendly tool like Tableau or Power BI for creating insightful visual representations. Make sure the tool integrates with the rest of your systems.
2. Identify key metrics: Pinpoint essential financial metrics and KPIs relevant to your ecommerce business. This might include goals centered on sales trends, revenue streams, expenses, and inventory turnover.
3. Build interactive dashboards: Use the chosen tools to create interactive dashboards for dynamic data exploration. Bar charts, line graphs, pie charts, and heat maps can effectively represent different facets of financial information. These dashboards should allow you to make on-the-go decisions and plan for the future.
4. Ensure consistency and cohesion: Establish a visual hierarchy and maintain design consistency for better readability. Organize data logically to construct a coherent narrative. Use annotations and text to provide context and explanations, guiding users through the story within your visualizations.
5. Iterate and enhance: Regularly assess the efficacy of your visualizations and seek feedback. Iterate and make improvements based on user experience and evolving business requirements.

Key takeaways on financial reporting for ecommerce

In conclusion, understanding financial reporting is vital for ecommerce success. This article emphasized the importance of key financial statements, tools for simplification, and the value of data visualization. A solid grasp of these principles enables businesses to make informed decisions and navigate the evolving landscape.