Bookkeeping for Amazon FBA: Everything You Need To Know

Bookkeeping for Amazon FBA: Everything You Need To Know

Amazon has become one of the most popular platforms to sell products online. About 50% of Amazon’s total revenue came from third-party sellers in 2019. With numbers like these, the competition to start an Amazon FBA seller business is fierce.

While bookkeeping is not the most exciting subject, it is crucial to help Amazon sellers understand where their business stands financially. Having proper systems and processes for accounting and bookkeeping will give your small business confidence in its decision making. Understanding your FBA business numbers will allow you to grow your business by helping you see what is working and capitalizing on trends.

In this article, we will discuss the best practices and tips for keeping track of your expenses and revenue—leading to a clearer picture of how to manage your Amazon FBA’s money better to leverage growth.

We will also cover accounting terminology in this article. 

Here are some descriptions of terms we will talk about in this article:

Cloud Accounting

Cloud-based software is similar to many storage platforms you might use, like Dropbox or Google Drive. However, these cloud bookkeeping services are designed specifically for bookkeeping and accounting.

This software is similar to standard self-installed accounting software. The main difference is that the data is sent to the cloud to be processed and returned to the user.

The importance of using Accounting and Amazon Seller Bookkeeping

The foundation of a successful small business as an Amazon FBA is its seller bookkeeping. Proper accounting will ensure that your cash inflows and outflows are appropriately done, especially if it’s still a startup.

If you do not have a solid foundation to stand on, your business is running blind. You can get lucky while running blind, but you are just as likely to trip and fall.

Without accounting as an FBA seller, you can suffer from cash flow shortages, paying suppliers late, and even have payroll struggles.

Doesn’t Accounting Only Matter in Tax Season?

Many sellers do their FBA accounting only around tax time and thinking that they only have to think about it once until the next year.

Having a relaxed approach to accounting will only set yourself up for headaches and failure. Make sure you do not let this happen to you.

Keeping accurate bookkeeping records will make tax season a lot more manageable for your accountant. It will also give your business detailed, timely, and accurate accounting data. You are providing your business with information to make informed decisions.

Important decisions from this accounting data will allow you to acquire customers, sales, inventory management, and operating expenses like paying the business owner.

Should You Save Money and Do Your Own Bookkeeping with an Excel Spreadsheet and Amazon’s default reports?

Much of the Amazon seller bookkeeping takes too much time for most FBA sellers to do well. However, if you are an Amazon seller, you might think it will save you money.

We would not recommend doing your bookkeeping on your own unless you had experience in bookkeeping or accounting before becoming an Amazon seller. Doing it yourself is a lot of hours spent on FBA accounting that you are not an expert on.

One of the most effective business decisions you can make today is to save the time you are spending on FBA accounting and spend it on growing the business.

Make sure you do not get your virtual assistant (VA) to do it either. Unless you have rock-solid processes and procedures in place for your bookkeeping, the chances of mistakes are high. Errors on the books can cost you a lot of time and money to clean up when it comes time to pay your taxes.

Smart bookkeeping. Powered by professionals. Backed by technology.

Bookkeeping for Amazon FBA: Everything You Need To Know

Let us do it all for you!

  • Reconcile your accounts
  • Provide you with clean books every month
  • Ensure accurate records for seamless tax filing
  • Track your business financial health

FBA Seller Benefits

As all small business owners should know, keeping your books in order is a significant part of accounting and bookkeeping. However, for an Amazon Seller, there are many other benefits as well.

Understanding the businesses finances

Decisions driven by data can be made as an Amazon seller when you have the right processes and financial systems in place. As a small business owner, you will target opportunities for growth quicker and squash potential problems before they hurt your business.

A proper accounting system will help you as an Amazon seller review what products sell for a profit. Allowing you to see how much money is on hand to pay yourself towards the month’s end.

Grow Businesses Profitability

An Amazon seller might think of profit as

sales – expenses = profit.

Essentially this method says that whatever is leftover at the end of the month or year is the business’s profit. However, Amazon sellers might have little to no profit left at the end of the equation.

As an Amazon seller, it can be a learning curve but using the Profit First Framework flips the equation around to being:

Sales – Profit = Expenses

This simple shift makes an Amazon seller prioritize their business’s profitability.

Cash Flow Forecast Creation

Creating a process for regular bookkeeping will also allow you to do more traditional cash flow forecasting. Enabling you to invest in and forecast for pay-per-click (PPC) advertisements, purchasing inventory, hiring, and more through creating a worst, moderate, and best-case scenario.

Cash flow forecasting and inventory planning are two tools that FBA sellers use to scale their brands. Since you cannot grow well without stock, they go hand in hand.

As you can see, it is essential to have these tools for your amazon business to have confidence in knowing what you can spend and when.

One of the significant challenges that many new FBA operators face is understanding that profit is not cash. Your small business is committed to making payments on purchase orders (PO) terms, credit card bills, or other accumulated debts.

Avoiding Fines and Scary Letters from the Tax Office

The two certainties in life are always death and taxes. You cannot run away from either, but you can create a roadmap to put money away for taxes.

Ensuring that your bookkeeping is continuously updated will help you set aside money in your business bank account to pay your taxes on time. Instead of trying to scrape up the cash that your tax professional says you owe.

How an FBA Business Should do Their Accounting

Find a cloud accounting software.

You will want to get out of using Excel and start utilizing cloud accounting software. Using a cloud platform will let you access your data from anywhere in the world. A cloud-based platform will also be more accurate, faster, and more reliable. Your Amazon Seller Central Account will easily connect to many of these services as well.

Before you sign up for the software, ask yourself:

  1. Is it user friendly?
  2. Does it work with Amazon Seller Central?
  3. Does it auto-sync with all my financial software, bank account, and credit cards?
  4. Is it encrypted and secure?
  5. What is the rating on their customer service?

Financial Reporting Systems

Most Amazon FBA business people rely on accounting through their bank balance. Checking their bank accounts daily or every couple of days. If that account is showing growth, they are happy and do not question it. However, from an accounting and bookkeeping perspective, there is a lot more to look at.

As your business grows and scales up, your expenses should scale too. Only looking at the balance in your bank account can cause your cash flow problems, shortages on inventory, and put you in significant debt.

Instead, you need to set up these three standard reports and review them at least every month.

  1. Profit and Loss (P&L)/Income Statement
  2. Balance Sheet
  3. Cash Flow Forecast

Let us dig deeper into each of these reports.

P&L/Income Statement

The P&L report will let you efficiently see all revenue and expenses during a given period. Helping you spot trends and keep a watchful eye on costs.

For example, you might see that there was a surge in new sales in June. With the P&L statement, you will be able to dig in and see what caused that surge. Maybe the company spend more money on PPC ads, tried a new SEO strategy, or something else entirely.

Identifying what caused a sudden growth in sales will allow you to invest more in what is working in your advertising and see if you need to invest more in inventory.

You may also notice an unexpected downturn in sales. You can then keep a watchful eye on your expenses. Maybe you are spending too much money on specific software that you are not utilizing.

Balance Sheet

Your balance sheet will give you an elevated view of your business. The balance sheet lets you look at all of your assets (what you own) and liabilities (what you owe).

Cash Flow Forecast

If you want to plan better for the future, the cash flow forecast is an effective way.

It is a more hands-on report than the balance sheet and P&L. You will be able to model worst, moderate, and best-case scenarios in the cash flow forecast.

At least once per quarter, it would be best if you created a cash flow forecast. If your business is volatile or is in a global recession and pandemic, you would want to run this report more often.

What you need to create a cash flow forecast:

Best Practices for Amazon Accounting

Bookkeeping for Amazon FBA: Everything You Need To Know
Up to Date Chart of Accounts

The index of all categories you will use to organize your transactions is your chart of accounts.

It is simple to maintain a chart of accounts. It would be best if you kept up with categorizing your transaction on a weekly or monthly basis. Then you will have categories that are defined and show where you are spending your money.

Cash or Accrual Accounting

Is accrual or cash accounting better for your Amazon business? The best answer is that it depends on the company.

The main difference between the two is timing.

Many business owners start with cash-based accounting and switch to accrual-based accounting as they scale larger. Accrual accounting works well for fast-growing FBA businesses that have large surges in sales during the year. It would be best if you spoke to your Amazon accountant and bookkeeping specialist before making these decisions.

Bank Statements Reconciliation

Running a reconciliation report will help you see any errors and inconsistencies between your banks and credit card statements and what is showing up in your financial software. Reconciliation is most important when submitting financials for tax season.

Cloud accounting software and apps are useful tools for auto-syncing every bank transaction to your feed. Occasionally, there might be a bank feed outage, or a few transactions may be unaccounted for.

Reconciliation reports can also help protect your company from fraud. If your VA has access to your bank accounts, running a reconciliation report will help ensure your VA is not stealing from your company.

Well Categorized Inventory

When ordering inventory, you need to know how much and how soon should you order. You also need to see if you should discount any excess inventory or let it take up space at the warehouse. You will need to know how to account for shrinkage as well. These are significant challenges that Amazon sellers deal with.

To categorize inventory properly and keep a real-time balance sheet, you can then make decisions from data instead of just your gut feeling.

If you are ever looking to take out a loan or finance something short-term, it is easier to do so with up-to-date and detailed records.

Tax Time Compliance

It is better to be safe than sorry at tax time. Even if you have a high tolerance for risk, it is best not to risk your taxes.

For businesses in the United States, the IRS can charge you fines, garnish your wages, take your assets, and send you to jail for significant offenses.

Directing yourself through taxes is a headache for many Amazon sellers. Reading through the text information for a sales tax can be a daunting task. You do not have to do this alone, though. Using apps like TaxJar or Avalra can save you a lot of time and energy as you handle your Amazing business scaling up.

Making More Revenue Steams

Becoming reliant on one revenue stream is a big risk. If Amazon went away tomorrow, your account got suspended, or Amazon does not give your shipments priority anymore, you are stuck.

Having a store on Shopify can be a great way to diversify your portfolio from being solely reliant on Amazon.

Bookkeeping is Everything

As an Amazon seller, bookkeeping should not be a solo act. You can hire a bookkeeper to support you in anything bookkeeping related. Scaling your business on Amazon has enough challenges of its own. Business owners need to prioritize their bookkeeping to stay on the up and up.

Ask yourself if you have enough time to do the work that a bookkeeper could support you on. Your company’s potential savings are not always worth the time spent on gathering tips and information on financials.

Utilize the financial reports provided by your accountant and bookkeeper to set up the future for the business.

The best way to grow your Amazon FBA is through using the data you will receive from the accountant you entrust with your Amazon seller bookkeeping.

Smart bookkeeping. Powered by professionals. Backed by technology.

Bookkeeping for Amazon FBA: Everything You Need To Know

Let us do it all for you!

  • Reconcile your accounts
  • Provide you with clean books every month
  • Ensure accurate records for seamless tax filing
  • Track your business financial health