There are over 100,000 new sellers added to the Amazon marketplace every year, but not every seller will stay in that marketplace.
One of the biggest reasons many FBA sellers fail to keep their business afloat in a saturated market is poor accounting. Being able to successfully track income, expenses, cash flow, and other important sales numbers over the long haul will either make or break your business.
Just because you’re a seller doesn’t mean you have to be an expert at accounting, but there are a few basics every seller should know about tracking money. Let’s take a look at a few important areas every FBA seller should know about.
Break Down Big Tasks Into Smaller Ones
It can be tempting to leave your accounting to the end of the year or simply look over your records when taxes are due quarterly, but it’s important to keep track of your income and expenses on a weekly or monthly basis too.
Knowing exactly how much you’re spending on supplies and materials will help you notice any discrepancies as soon as they arise as well as tell you if you should be charging more or less for certain products.
More frequent accounting can also help you take notice of your own time and energy expenditure to see if there are areas of your business where you may need to hire additional help.
One of the reasons many sellers don’t track more frequently is because of the time it takes to go over your books. One way around this is to break down larger tasks into smaller tasks throughout the month.
Set aside a few hours one day a week for taxes, another day for income and expenses, and another day to budget and review. This way you’re covering all your bases each month without spending a significant amount of time away from your regular duties.
Keep Business and Personal Finances Separate
FBA Sellers should also be aware of commingled finances that could create accounting problems down the road.
Scott Scharf, Chief Ecommerce Geek for Catching Clouds, says that it’s important to keep business and personal finances as separate as possible.
“If you’re using a personal credit card to fund the business, that’s okay, but use one card for only business transactions and don’t co-mingle your business and personal expenses.”
This is especially true if you’ve structured your business as a sole proprietorship. In a sole proprietorship, all business profits, losses and liabilities are tied to you personally, which can cause trouble if the IRS ever audits you.
An audit will put the burden of proof on you to disclose your business income and expenses, so it’s equally important to keep good records so you can show which purchases were made for business reasons and which were made for personal reasons.
Having two separate accounts will help make this distinction clearer and save hassle should problems arise. Keeping your business finances separate also reduces your legal liability and can help you manage your tax and business bills more efficiently.
He also suggests using tools like Hubdoc to pull in all of your bank, credit card, and other statements.
Pay Attention to Taxes
Taxes are another big area that many sellers often forget about or put off dealing with until the last minute. But failing to be aware of basic tax requirements can be detrimental to your business.
For Amazon FBA sellers, you’re liable for collecting sales tax in all states where you have “nexus” – a physical business presence in a given state. You have nexus in any state that stores or ships your products from an Amazon Fulfillment Center (Amazon has fulfillment centers in 20+ states).
You can determine where Amazon is storing your products by pulling your Inventory Event Detail report through Amazon Seller Central. Once you’ve determined where you have sales tax nexus, register for a sales tax permit and begin collecting sales tax from customers in those states.
You also need to consider the “materiality” of your sales tax, or whether or not the volume you’re selling is worth collecting the money. Oftentimes with low volume, the cost to collect and remit the tax exceeds the amount of tax itself.
If you have nexus and what you sell is taxable, and you decide the amount of tax to collect is negligible, then you might not want to collect it at all.
If you do decide to go this route, it’s important to track your sales volume on a regular basis so you don’t get stuck owing more money once taxes are due.
Use Automated Solutions
Finally, no matter the size of your business, you don’t have to do every bit of accounting on your own. The best thing you can do in terms of accounting is to use an automated solution to help you gather and analyze data.
Scharf recommends using a combination of A2X (which will post the income and costs of goods sold for your Amazon sales) and Xero, a best-in-class cloud accounting tool for ecommerce businesses. This combination will collect 95% of the accounting data needed for your business.
If you’re not good with figures and numbers, or the thought of doing your own accounting frightens you (and hiring a bookkeeper or accountant is not an option), then an automated solution will help you keep accurate records with relative ease.
You also have the added benefit of speed, accuracy, and the ability to quickly compile reports when you need them, which can help make keeping track of your money less of an afterthought.
While keeping track of numbers and figures isn’t easy for every FBA seller, it is necessary. But you can make the job a lot easier on yourself by following a few practical accounting tips.
Don’t wait until the end of the year to do your accounting. Break down large tasks into smaller and more manageable tasks throughout each month, and be sure to keep up-to-date on your sales numbers.
This will help not only with projections and other data, but it will make tax time easier as you’ll know whether or not you need to charge sales tax (and how much to charge).
If you feel overwhelmed at the idea of keeping your own books, you can always use automated solutions to collect the data you need so that you can focus on what matters: your business.