Bookkeeping for Amazon Sellers
Bookkeeping for Amazon sellers is the process of recording and storing the day-to-day financial transactions of a merchant. The terms “sales,” “purchases,” “shipping charges,” “debt payments,” and “advertising spend” are all examples of everyday financial transactions. In the next section, we will discuss why maintaining accurate books is crucial to a firm’s operation.
Why Are Accounting and Bookkeeping So Important?
There are several reasons why bookkeeping is vital for businesses that sell on Amazon. Still, we’ll begin with one of the most important ones: Keeping track of the financial operations enables you to evaluate how well the company is doing over time.
Do you know, for instance, how much money the company has gained from a profit? What really matters is how much money it made, not how much revenue it brought in through sales.
Remember that profit refers to the remaining money after subtracting all other expenses. When you maintain the books in order, determining the profits becomes simple. If you don’t know how much (if any!) profit the company is earning, it will be impossible to evaluate the company’s health and long-term viability if you don’t have this data.
What Are the Most Important Advantages of Selling on Amazon?
Keeping accurate books and records offers several significant advantages that most Amazon sellers are entirely unaware of.
To begin, if you ever decide to apply for a loan for the company, the creditor will require you to give them various financial details. If the books are correct and up to date, this won’t be difficult to accomplish at all. It won’t matter if you haven’t been keeping track of this information or if the records are inaccurate.
Two, if the client ever decides to sell the company, the purchaser will want to look over the financial records. Again, if you properly maintain the books, this will not pose a problem for you. However, if you do not, it will become a nightmare.
Services of an Amazon Accountant – What’s the Need?
The accessibility of these benefits requires significant effort, although each of these advantages sounds fantastic. Accounting is challenging for any type of company and should only be handled by trained specialists knowledgeable in the field.
Far too many business owners and Amazon sellers try to get by with cloud-based accounting software or services and do their best to keep things organized, but they fail miserably more often than they succeed. This typically leads to errors in accounting as well as incomplete records.
Taking a do-it-yourself strategy will force you to scramble whenever you need anything to generate new papers and locate the ones you already have. Because of this, dealing with accounting becomes even more of a chore, generating great anxiety during tax season.
You cannot accomplish something of this nature on your own at this point in time. You can either attempt to handle your own bookkeeping by pulling reports from your Amazon Seller Central account or search for the most effective accounting software available.
However, if you are serious about keeping your business above board, maximizing your deductions come tax season and, tracking sales tax, maintaining an accurate understanding of your financial health with the proper accounting system. Impressing potential buyers or lenders, you should trust a certified public accountant (CPA) or an agency with experience in the field.
First things first, let’s go through how to get off to a good start.
To embark on Amazon’s financial management software and the company registration process, it is essential to prioritize setting up correctly from the outset, as recommended by our specialists and vendors. What exactly does this entail?
It signifies two different things:
Registering your business
Many Amazon businesses have humble beginnings as hobbies but have grown into lucrative enterprises.
Because of this, it can be tempting to put off registering a company and paying taxes in the beginning stages of business operations. However, this is not the most effective strategy moving forward.
If something goes wrong with your business, registering it can shield you from specific responsibilities and allow you to keep your business revenue distinct from your personal income. As the company owner, you are responsible for meeting all your financial and legal obligations.
It is in your best interest to register your company regardless of whether or not you believe it is prepared for the change.
A valuable piece of advice is to search for the most recent information continually. Do not let unexpected obligations catch you off guard, especially when it comes to the sales tax that applies to online shopping. Having an eCommerce accountant to help you out is beneficial, even if it’s just at the beginning of your business venture and not for the long haul.
Taking your Amazon accounting to the cloud
Although spreadsheets and paper-based systems are cost-free and simple methods to get started, they only prove helpful for managing relatively limited volumes of data. And even with that, it’s a time-consuming process that’s rife with opportunities for error.
If you are serious about Amazon selling, ensuring that your systems are robust enough to handle larger transaction volumes without problems is essential. If you are serious about Amazon selling, it is essential to ensure that your systems can handle larger transaction volumes.
When you follow proper accounting procedures, closing the books takes no additional time, and it ensures the production of highly accurate information.
Previously, companies had to run digital accounting systems on servers and PCs, requiring frequent backups and software updates. However, nowadays, most accounting systems are hosted remotely in the cloud.
Because of this, there is no need to create multiple accounts, update software, or even download software in the first place. You can access your books from any location in the world when you use cloud accounting services, and you can securely transmit information when required.
A helpful hint is that there are solutions available for accounting software that can start small and grow with you. This means that your initial investment does not need to be prohibitively expensive. When it comes to your Amazon accounting needs, you should investigate what QuickBooks, Xero, and Sage have to offer.
Getting organized: Amazon business planning
An Amazon business strategy will benefit you in many ways, including your accounting, which is only one of those methods.
A business plan serves as a sounding board throughout your company journey, can be modified over time, and provides a solid starting point for assessing progress.
In summary, a business plan assists in developing strategies and organizing for the present and future of your company.
Attention to detail and organisation is crucial when it comes to your Amazon documentation. A useful tip is to outline the specific elements of your Amazon accounting in the financial section of your business plan. This helps you anticipate the information Amazon will provide and allows you to identify any gaps that need to be filled in.
Regular checks to avoid mistakes
You must always keep your personal visibility and comprehension of your financials, even if you are using an optimized accounting stack, which is something we will discuss in the following section.
So let’s make a night of it, shall we? And make it a consistent practice, not just once a month.
Checking in once a day or a week doesn’t have to take more than ten to twenty minutes time, but it’ll help you keep track of the performance of your business. You’ll become more aware of any problems more quickly, and have a better sense of any patterns.
The world of online retail is frenetic and cutthroat, prone to rapid change, and demanding one’s full attention. You can save time and improve your familiarity with your company if you manage your accounts in chunks consistently.
Important advice: Don’t include the cost of your merchandise in your expenses! This is a mistake that frequently occurs in Amazon’s accounting. If you get everything set up correctly from the beginning and check in on it frequently, you should be able to solve problems like this one before they become more serious.
Optimizing your Amazon accounting automation: Getting to the next level
Integrating your accounting software with Amazon’s Seller Central is a great way to instantly transfer data. However, making effective use of that data often demands substantial human effort, calculations, and accounting expertise, which many online retailers lack.
As a seller on Amazon, keeping the books sometimes becomes an increasingly difficult task as it requires a significant amount of time and is rife with inaccuracies:
Getting help: Free Amazon seller accounting resources
Utilize the variety of helpful information that is available online to give yourself the greatest possible opportunity of succeeding with your Amazon FBA accounting.
What Characteristics of Amazon’s Bookkeeping Set It Apart From the Majority of Other Businesses?
The accounting for Amazon is most effectively handled using an accrual system, in contrast to the majority of other small firms, which operate using a cash basis:
The Challenges of Cash Basis Accounting
The issue with accounting on a cash basis is that it’s possible to buy inventory weeks or months before you sell it. Then you don’t get paid for it until at least two weeks after it’s been sold and sent. This can be a significant delay. When using the cash basis of accounting, it is possible to have months that appear to be very profitable or very unprofitable.
Benefits of Accrual Basis Accounting
Accounting based on accruals brings this into balance by synchronizing the timing of sales with when products are dispatched. This means that we record the entire amount you sold in a month, even if you haven’t yet received payment, and we match it with the cost of the things you sold, although you may have purchased them a long time ago. In this method, you can determine, for each product you sell, whether or not you are generating a profit!
Real-World Impact: A Comparison
To illustrate the real-world impact, here’s a side-by-side comparison of the earnings of the same company over two months, viewed from an accrual basis versus a cash basis:
In the first month of the contract, the company invests significantly in inventory, resulting in a negative cash flow for the entire period. When assessing the cash side of the business in the second month, the firm does not acquire any inventory, creating an illusion of immense profitability.
However, neither month accurately reflects the true situation at hand.
Managing COGS and Landed Costs
On the accrual side, including total sales before Amazon fees, showing the fees separately, and directly tying the cost of goods sold (COGS) to the products shipped in a given month, rather than what was purchased, presents higher sales.
Minimizing Costs and Achieving Alignment
This approach creates the appearance of elevated sales and results in a month appearing profitable. In the subsequent month, a typical variation includes a slight increase in Amazon fees and COGS. Without accrual accounting, understanding the true state of the firm and making accurate month-to-month performance comparisons becomes challenging.
For operating an Amazon-based firm, precise management of COGS and leveraging landed costs is crucial. COGS often represents one of the most significant expenses for Amazon sellers.
To determine the actual cost of selling merchandise, consider the selling price and include expenses like shipping, duties, fees, and more for transporting items to the Amazon fulfilment centre.
The primary objective is to minimize unit costs and align them with the comprehensive “all-in” total cost of selling the product. While spreadsheets can track costs for a few items, as your product range expands, inventory management software becomes essential for accurate tracking and staying on track.
Channel-Specific Tracking
If you have multiple sales channels, it’s crucial to track income and expenses separately for each channel (e.g., Amazon US, Amazon UK, Shopify, Wal-Mart, eBay). Even if you sell the same products in different markets, it’s essential to determine which channel provides the highest return on your time investment.
To make meaningful comparisons, monitor sales, cost of goods sold, fees, and other channel-specific charges. This analysis can help you identify lucrative expansion opportunities and areas where efforts may not yield worthwhile results. Combining everything into one overall result can obscure the fact that one channel might be disproportionately supporting others or even masking losses.
Preparing for Selling the Business
When preparing to sell your business, categorize operating expenses separately from overhead expenses. This distinction is important as the worth of your company relies on Seller’s Discretionary Earnings (SDE), which include profits and non-essential expenditures. By informing us in advance, we can divide these expense categories in your chart of accounts. Monitoring SDE over a year forms the basis for determining your company’s worth. Separating expenses in advance saves time and provides a month-by-month snapshot of potential sale value.
How to Keep the Books for Your Online Store If You Sell on Amazon
Try Amazon bookkeeping and accounting in two ways:
- The business owner can handle the accounting themselves.
- The business owner can engage a professional to conduct the accounting.
Let’s talk about the second choice first because it’s the simpler one (and often cheaper, but more on that in a minute).
When you hire a professional bookkeeper, all the pressure and tension you have been carrying is lifted off your shoulders. You won’t have to worry about it being done, done on schedule, or done right. We will take care of all of those things for you. In addition, outsourcing this duty enables you to focus on other parts of your business, such as product development and marketing, which are likely to provide you with higher satisfaction.