For any entrepreneur, the prospect of selling on Amazon is thrilling.
Amazon is a sophisticated marketplace with all of the tools new vendors need to earn a good living.
However, winning money on Amazon isn’t always simple. It might be easier if you plan ahead – especially if you look at accounting for Amazon sellers.
In bookkeeping terms, bookkeeping is the process of collecting and analysing financial information from a business in order to determine its financial position. For vendors who sell on Amazon, bookkeeping means doing accounting that covers all the company’s transactions related to selling.
In this article, we will discuss everything you need to know about accounting for Amazon sellers.
Step 1: Set up an Amazon accounting software
Planning ahead is the best way to start accounting for Amazon.
This includes setting up an Amazon accounting software. There are many different accountancy programs that can be used to track your company’s financial transactions, but knowing which one to use depends on what kind of business you run, and how you prefer to work.
Some accounting programs are only compatible with certain operating systems, while others may use specialised accounting software, or cloud-based accounting.
Some will integrate with your bank account to automatically process transactions for you.
Make sure that before you do anything, you read the documentation for your accounting software carefully. This will give you a better understanding of how it works and how to configure it.
Free 30-Min Strategy Session
By the end of this Strategy Session, you will have a clear understanding of the next steps you can take for your business to take advantage of the tax deductions you are missing out on.
Getting started with your security system correctly from the start is number one on our list. What exactly does this imply?
It implies two things:
#1: Registering your business
Many Amazon enterprises begin as hobbies and gradually grow into something bigger.
This is why it’s easy to put off registering a firm and paying taxes during the early days. However, this isn’t the best approach to go.
When you register your firm, it can help you avoid certain liabilities and allow you to separate your business from personal income. You are 100% responsible for your legal and tax responsibilities as the company owner.
It’s essential to register your company if you believe it is or isn’t.
Tip: Always check for the most up-to-date information. Obligations change frequently, especially when it comes to ecommerce sales tax, so don’t be caught off guard. Having an ecommerce accountant on your side at least in the beginning can save you a lot of time and money.
#2: Making your accounting process easier
In order to be effective, spreadsheets and paper systems need not only a large number of data, but they also have to manage it well. Even then, errors are easy to create and time-consuming to correct.
It’s critical to make sure your systems are sturdy if you want to sell on Amazon.
It doesn’t take long to do the books once a good accounting system is in place. However, as a result you get much more dependable statistics.
Digital accounting systems have long been maintained on servers and company computers, necessitating frequent backups and software updates. Most accounting systems are now remotely hosted in the cloud.
All of this would be impossible without cloud accounting software, which allows you to access your books from anywhere in the world and share information as needed. You can securely exchange information with cloud accounting systems because they allow you to view your records from anyplace on the planet.
Tip: There are various accounting softwares available that may be used to begin small and expand as your company grows – your investment does not have to break the bank. Consider using Quickbooks, Xero, or Sage for your Amazon accounting if you want a low-cost solution.
Step 2: Amazon business planning
Once you have set up your accounting software, it’s time to think about the business plan that will help lead you to success.
A business plan is a document that describes your goals and how you expect them to be achieved. The document should also include details on how much money you need as capital investment, as well as what kind of inventory you will need to stock your store.
the business plan it’s an excellent tool for keeping track of your objectives and actions, can be updated over time, and provide a safe place to start, return to, and assess growth.
You can use this document as a reference for future financial decisions. It will help keep the business on course and show investors (and yourself) how much progress has been made towards your goals.
After you have thought about these details, it’s time to set up your store.
You’ll need to keep all of your documents in order when selling on Amazon. One of the most essential is your Amazon documentation, which might be kept in your accounting software but may also be managed with an aggregator application like Hubdoc.
It can help you maintain your documents and will even provide notifications. That means you’re less likely to miss a legal requirement.
Tip: Outline in detail exactly what you’ll need to keep track of in your Amazon accounting in the financials component of your business plan. This will assist you in preparing for and recognizing any data gaps that Amazon will provide you, as well as any items you’ll need to address on your own later on.
Step 3: Maintain your accounting Accuracy
Maintaining accurate financial records is of absolute importance.
Accounting accuracy consist of:
1- Inventory control: is the process of tracking inventory in order to ensure that it is acquired at the right time and, ideally, in the appropriate quantities. Also known as stock control, this function helps reduce overhead costs by optimizing inventory levels, lowering storage expenses, and preventing stockouts.
Inventory control is essential to ensuring that items are available for purchase when customers place orders, so your business can turn inventory properly.
2-Sales Data: Amazon only deposits in your account every two weeks, you won’t be able to get a more comprehensive look at your sales data. The payments simply provide the overall end result at the conclusion of a two-week period.
You need to be able to identify which items are selling well, what is bringing in the most money, and how various costs effect your business. You can either manually go through your store’s back end and analyze the data you gather in a spreadsheet, or simply consult your accounting software that has been automatically updated with information from your store. It will be able to tell you which products and services your business is most profitable with, and why.
In order to have a successful business, it is necessary to know exactly where all of your money is going.
Keep yourself away from errors & run a regular checks
Be certain that you’re catching mistakes and staying up-to-date with necessary updates.
Even with a well-optimized accounting stack (which we’ll look at next), you must always have your own insight and knowledge of your finances on hand.
So, set a date. And make it weekly, not once a month.
Checking in on a regular basis, which doesn’t have to be more than 10-20 minutes of your time, will help you stay on top of your business’ activities and performance, detect any problems faster, and gain a sense for any patterns.
The ecommerce industry is competitive, dynamic, and ever-changing. You can save time by keeping track of your accounts in little, regular chunks.
I would recommend to not consider your inventory a cost! This is a frequent Amazon accounting error.
You should be able to correct any problems like this before they get worse if you’re set up correctly from the start and check in on a regular basis.
You can also consider hiring an experienced ecommerce accountant to spend less time on accounting, freeing up more time for marketing and inventory management.
Tip: Try using some sort of software automation , such as Zapier to help you automate tasks and save time. This will allow you to concentrate on being creative, instead of managing your business’s administrative functions.
Step 4: Getting Tax Ready
You should keep the tax department of the company you work with, apprised of your business activities. You can file monthly or quarterly sales taxes on behalf of your customers even if you do not collect it on every order. This will help make sure that any future audits happen more smoothly.
Your accounting software will be able to keep track of the sales tax rates, as well as all other transactions related to sales and purchase.
You should also consider hiring a qualified accountant or at least a bookkeeper who can help you complete your accounting work and make sure that your business complies with any necessary governmental regulations.
He can help you file your taxes and save you money by ensuring that your business is as tax efficient as possible.
A good accountant will look out for deductions that can reduce your taxable income, such as those related to research and development, investments and equipment depreciation.
You should consult a financial professional who understands Amazon commerce and the ins and outs of ecommerce accounting strategies to help you minimize your tax burden.
Step 5: Automate your Amazon Accounting efforts
Linking your Amazon accounting program to Seller Central is a fantastic method to share information instantly between the two platforms. However, properly utilizing that data requires significant manual time and computations, not to mention accounting abilities that many ecommerce sellers lack.
Accounting was always been a major obstacle for Amazon sellers since it does not automatically update the accounting records. But now you have an ecommerce accounting strategy that will produce accurate reports and allow you to keep track of what is going on with your business in real-time.
This automation will help you reduce the amount of time you spend on accounting tasks, thus creating more time for other business activities.
You can consider using an automated sales and inventory management program that will immediately import your data from Amazon to your accounting software, track all refunds and returns in real-time , provide accurate financial reports every month, week or even each day, and help you optimize your Amazon FPA business.
If you’re tired of doing your Amazon accounting manually, then it’s time to set up an automated system.
The good news is that there are many software providers who offer solutions for just this problem–and they can help you maintain accuracy and stay on top of tax obligations as well by automating the process.
And if you’re serious to boost your business profitability you can download our E-book The 9 Most Crucial eCOM Tax deductions The IRS Doesn’t Want You To Know.