Bookkeeping -- or accounts management -- is a critical part of every Amazon seller’s business. Without accurate financial records, making sound decisions about your business, or even understanding how well you're doing, is next to impossible.
But with so many different things to keep track of, like inventory, sales, expenses, and more, it can take time to know where to start. Luckily, there is a way to cut through the noise and discover the best ecommerce bookkeeping strategies for Amazon sellers in Q1.
By following these tips, you can be sure that your financial records are in good shape and that you're making the most informed decisions about your business moving into the new year.
Building a successful ecommerce business is not the walk in the park it once was – or at least, was considered to be. The industry continues to evolve at a rapid pace, making strong bookkeeping processes absolutely essential.
Vannessa Hung (Online Seller Solutions, Carbon6) says that while all sellers might not share the same numbers, they are all affected by the same changes, challenges, and environment. Solving them will look similar, if not identical, no matter the size or scale of business.
Here are three major reasons to make sure your ecommerce business is fortified by rock-solid accounts and proper bookkeeping.
It isn’t breaking news that ecommerce businesses are growing at an unprecedented rate. With millions more people spending billions online every year, that trend will only continue, with increasingly more money flowing through ecommerce businesses.
Of course, with that growth comes more inventory, and with more inventory comes more pressure on Amazon sellers' cash flow. If you're not keeping track of your finances properly, it's easy to find yourself in a position where you don't have the cash reserves needed to fund new stock orders, leaving you at risk of stocking out of your most important products.
Healthy, growing businesses pay close attention to their bookkeeping processes to ensure growth is always receiving the funding it needs. Savvy sellers will use inventory management software like SoStocked to avoid debilitating stockouts and costly overstocking.
Like in every other industry, ecommerce businesses are contending with rising costs. Fulfillment and shipping costs have fluctuated significantly since the Covid-19 pandemic began in 2020, and remain highly sensitive to ongoing global events.
Wider supply chain problems have also been impacted by labor and materials shortages, driving the cost of goods to record highs, while advertising costs continue to increase as ecommerce businesses fight for attention in a competitive marketplace.
There's also always the possibility that Amazon increases FBA fees, as it did at two separate points recently in 2022. Many of these fees revolve around surcharges for fuel, but also what the company calls "granular" fees, including storage utilization and aged inventory surcharges, which will dramatically impact Amazon storage costs.
Add some turbulent currency markets and ongoing inflationary pressure for good measure, and it's clear to see why ecommerce sellers have to take their bookkeeping responsibilities seriously.
By creating good bookkeeping systems, Amazon sellers can quickly spot negative trends and make informed decisions about where to spend money and best allocate resources in these unique times.
Nathan Hirsch of EcomBalance and AccountsBalance is adamant about checking income statements, balance sheets, and cash flow statements on a minimum of a monthly basis. “Sellers have a lot of decisions to make all the time, and they should be revisited and revaluated monthly.”
As the industry matures, ecommerce businesses are becoming more complex. In the early days of ecommerce, most Amazon sellers were simply selling products online. Now, there are a whole host of other things to consider, like multi-channel sales, a diverse range of marketing platforms, and, in particular, a fast-changing tax landscape.
In the United States, for example, the rise of ecommerce has not gone unnoticed. Whereas ecommerce sellers used to have an easier ride compared to their brick-and-mortar counterparts, the tax system is evolving and modernizing to ensure ecommerce pays its way too.
As your business gets more complex, it's essential that you create greater clarity, and a good ecommerce bookkeeping strategy can help you do just that.
Q1 is a unique time in the ecommerce calendar. The excitement of the Christmas season is well in the rearview mirror and a new year of opportunity lies ahead.
But Q1 brings with it its own challenges, particularly those that can impact profit margins.
Let’s take a look at some of the key challenges for ecommerce businesses and sellers.
Sellers in most categories will be in the habit of ramping up stock levels for Q4. For some, this can really pay off. A huge amount of extra traffic can result in a lot more sales and a bumper period of revenue.
However, with the costs of living on the rise across the world and consumer spending widely predicted to slow down in the months of uncertainty ahead, many sellers may find themselves overstocked.
This can lead to slashed prices and as a result, slashed margins.
As we’ve discussed, rising costs are in effect throughout the supply chain.
One of the biggest challenges for Amazon sellers going into Q1 is these inflationary costs trickling down the supply chain, impacting profits further.
For instance, Amazon just announced on 10th November that reimbursements for lost or damaged units at an FBA warehouse will not automatically qualify for full reimbursement. Instead, items in an unsellable condition "will be reimbursed at a discounted rate."
Amazon again shows it will do everything possible to maintain profit margins by trickling more costs down to sellers.
For Amazon sellers, this is an all too familiar story. Increased fees lead to additional costs, and a reluctance to raise prices to absorb said costs for fear of losing market share.
All of this presents a challenge that Amazon sellers will need to navigate skillfully going into Q1.
Q1 represents an interesting time of year for ecommerce brands, particularly those selling on Amazon. Whereas Q3 has Prime Day, and Q4 has, well… Q4, quarters one and two are much quieter on the retail event calendar.
As a result, brands depend on the traffic they can generate themselves rather than relying on major promotions or retail events that traditionally drive conversion rates up and overall profitability higher.
While the challenges for ecommerce sellers are apparent, there are a number of account strategy optimizations that will keep your business lean and your future bright.
Too many sellers fall into the trap of doing as little as possible when it comes to bookkeeping and accounting.
That usually means manically preparing books once a year, crossing your fingers that everything is in order, and having mostly outdated data to make decisions.
Instead, ecommerce sellers should be working with an accountant or bookkeeping service that regularly processes the books and prepares profit and loss reports.
Sellers should be looking at a detailed profit and loss report on a monthly basis at minimum. This helps sellers quickly identify areas in the business that need attention and provides the insight needed to make sound, data-driven decisions.
If you’re going to have regular visibility on your profit and loss, you’ll also want to make sure it’s calculated according to accrual accounting principles. Accrual accounting involves recording income and expenses when the transaction occurs, as opposed to when the cash goes in or out of your bank account.
Conversely, cash accounting – which is the default for most businesses and accountants – involves recording income and expenditure when the cash moves in or out of the account. Cash accounting is easier to administrate, but it makes it very hard to understand how your business is truly performing.
By adopting accrual accounting, you can easily compare month-on-month and year-on-year trends to optimize your finances and your overall business.
While the road ahead may seem uncertain, successful entrepreneurs are those who put their best foot forward to create the best possible future.
To have the best chance of success in that future, here are some tips for overcoming the challenges facing the ecommerce industry, and how to future-proof your financial processes.
One of the most exciting opportunities in building an ecommerce brand is building to sell. Private equity firms, aggregators, and traditional buyers continue to hunt for new acquisition opportunities in the ecommerce space.
But buyers are becoming smarter, and more seasoned in their acquisition process. This means they are looking for lean, organized, and documented businesses they can quickly pick up and plug into their portfolio.
By getting finances organized in the ways we’ve covered in this article, you can not only future-proof your books but also, as a result, maximize the potential valuation of your business.
It’s one thing to get organized, but if you’re going to scale up your business, you also need to systemize your bookkeeping process.
To successfully systemize your ecommerce business, you'll need to set aside time to create Standard Operating Procedures (SOPs) for bookkeeping in order to create a growing library of documented systems a team can follow.
It’s essential that you’re also leveraging quality ecommerce accounting tools to increase the reliability of your books and speed up the administration process.
Bookkeeping is one of the key areas every Amazon seller should get outside help with as soon as possible. It's one of the most important aspects of a successful, growing business and demands a skill level most ecommerce sellers simply don’t have time to cultivate.
By utilizing the services of a CPA or dedicated bookkeeping service, you can lean on the guidance of experts, ensure you always have up-to-date finances and position yourself to make clear growth-oriented decisions.
Lee Loree of Seller Investigators says that competing successfully on Amazon is becoming too hard to do without outside help. By removing yourself from as many processes as possible by hiring or consulting with experts, tools, or software will allow you to scale better, and assess new and previously unnoticed problems.
Managing finances is no joke. In fact, the mismanagement of finances is one of the biggest causes of failure in business. However, by deploying the tips and strategies we’ve shared in this article, you can set your business up for long-term financial health, weather any storm, and grow profitably for years to come.
Hear from experts Nathan Hirsch of EcomBalance, Lee Loree of Seller Investigators, and Vanessa Hung of SoStocked as they discuss bookkeeping practices for all FBA sellers in our webinar Understand Your Numbers, Increase Profitability. They cover: