Bookkeeping for Amazon Sellers: 8 Things to Keep in Mind Before Getting Started
If you’re stepping into the world of Amazon selling, you’ll quickly learn that keeping track of your money is as crucial as making sales. Although it might not be the most interesting part of your company, bookkeeping is essential to your bottom line. Before you jump in, here are 8 key points to help you manage your finances from the get-go.
Understand Amazon’s Fee Structure
Amazon’s fees might seem complex, but they’re a vital part of your sales. To keep your finances in check, you need to track every fee. Here are some essential fees to keep track of:
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- Amazon FBA Fees: These charges cover services including packaging, shipping, and customer support and are related to Amazon’s Fulfillment by Amazon (FBA) program.
- Monthly Inventory Storage Fees: These are monthly costs for storing your products in Amazon’s fulfillment centers.
- Per Item Selling Fees: These are charges for each item you sell on the platform.
- Amazon Seller Referral Fees: These fees are paid to Amazon as a percentage of the sale price for using their platform.
- FBA Disposal Order or Removal Order Fees: These fees apply if you need to get rid of items stored in the fulfillment centers.
- High-Volume Listing Fee: This fee might be relevant if you have a significant number of product listings.
- Miscellaneous Fees: Depending on the products you sell and your specific agreements with Amazon, there could be additional fees to consider.
Separate Business and Personal Finances
Mixing personal and business finances can lead to a real headache. It not only complicates the task of monitoring your business’s financial health but also raises red flags during financial audits. During audits, auditors require clear financial records of your business’s income and expenses. If you mix your personal and business finances, it will be difficult for them to identify which purchases were for what, which might eventually result in you facing fines and penalties.
Furthermore, separation is essential for other reasons as well. It reduces stress during tax season and allows you to manage your cash flow more effectively. Plus, having a clear distinction between personal and business funds makes it easier to plan for your business’s future.
So, do yourself a favor: set up a separate bank account exclusively for your Amazon-related transactions. It will save you a lot of trouble down the road.
Maintain a Record of Everything
Before you can begin your bookkeeping process, it’s essential to have a clear record of all your financial transactions. This includes invoices, receipts, bank and credit card statements, purchase orders, and more. These transactions are the foundation of bookkeeping, so it’s crucial to keep them well-organized to avoid losing important financial information. Moreover, in case of a potential audit, having well-documented records is essential, as authorities need concrete evidence.
When maintaining your records, it’s a good idea to keep everything in a digital format. You can use user-friendly platforms like Google Drive or Dropbox for this purpose. If you have paper receipts, you can easily convert them into PDFs or JPEGs using apps like CamScanner or Adobe Scan.
Choose the Right Bookkeeping Software
If you’re handling your own bookkeeping, rather than relying on manual ledger books and spreadsheets, it’s highly recommended to consider using bookkeeping software to simplify the process. These tools seamlessly integrate with your Amazon Seller Central Account and automatically import your expenses, sales data, and other essential financial information.
When evaluating accounting software options, be sure to keep the following factors in mind:
- Ensure that it can easily link to your Amazon Seller Account and other useful accounting tools.
- Check for key features like inventory management, bank reconciliation, and the ability to generate important financial reports such as profit and loss statements, balance sheets, and cash flow statements.
- Make sure the software uses a double-entry accounting method instead of a single-entry accounting method.
- Check if the software offers a cloud-based interface for convenience and accessibility.
- Ensure that it is user-friendly and provides helpful guidance to navigate the software effectively.
Don’t Forget About Reconciliation
If you’re doing your own bookkeeping, don’t forget to reconcile your accounts. This means comparing the entries you’ve made in your software with your bank and credit card statements. This is another compelling reason why maintaining separate bank accounts is essential.
Reconciliation ensures that your entries are accurate and that every dollar is properly accounted for. It’s a critical step to take before tax season, yet it’s often overlooked by many sellers. To avoid facing potential fines, penalties, and even legal complications, be sure to carry out this process at least once a month.
Recognise Your Tax Responsibilities
As an Amazon seller, it’s crucial to recognize and address your tax responsibilities. Here are some key aspects to consider:
- Income Tax: You are required to pay income tax on the profits you earn from your Amazon business. Income tax regulations can differ between countries, as well as between states or regions. Take the time to get familiar with the specific tax regulations and rates applicable to your location.
- State Tax: In addition to federal income tax, many states in the U.S. have their own sales tax regulations. You may need to collect and remit sales tax on sales made to customers in your state. State tax laws can differ greatly from one state to the next, so it’s important to know what the laws in your particular state are.
- International Sales: If you sell products internationally, there may be additional tax considerations. Some countries have Value Added Tax (VAT) or Goods and Services Tax (GST) that may apply to your sales. Additionally, you may also need to pay customs duties.
- Local Regulations: Depending on your location, there may be other local taxes or business license requirements you need to adhere to. These can include city or county taxes and permits.
Be Up to Date With Your Bookkeeping Tasks
As an Amazon seller, you deal with multiple transactions each day. While it may be tempting to delay your bookkeeping tasks until the end of the year or for tax season, this can be a costly mistake. Waiting too long can lead to overwhelming volumes of transactions, causing you to miss crucial entries. To avoid this, it’s advisable to update your accounts on a weekly basis, or at the very least, bi-weekly.
To simplify the process, consider breaking down your Amazon accounting tasks into smaller, manageable chunks. Dedicate one day each week for handling taxes, another day for sorting income and expenses, and another for reconciliation and budgeting.
Hire a Professional Bookkeeping Agency
Bookkeeping for Amazon sellers is manageable for small business owners, but if you have a larger business and find that your accounting tasks are overwhelming you, consider hiring a professional bookkeeping agency or a bookkeeper. These experts can handle various tasks on your behalf, including recording financial transactions, reconciling accounts, creating financial statements, preparing for unexpected audits, offering insights on tax-saving opportunities, and even managing your tax filings.
When hiring an agency or bookkeeper, look for those with a proven track record of specifically working with Amazon sellers, rather than just general eCommerce businesses. Amazon has its own unique fees and rules, so experience with the platform is essential.
Secondly, consider the range of services they offer. In addition to bookkeeping, check if they handle inventory management. Since your business deals with physical products, they should be capable of tracking inventory levels, calculating the cost of goods sold, and managing inventory valuation.
Lastly, find out what security protocols they have in place to safeguard your financial data. Any breach can result in data security issues, so it’s crucial to ensure they prioritize data protection.
Keeping accurate books is a non-negotiable part of being a successful Amazon seller. Start with these 8 steps to ensure your bookkeeping supports your business’s growth. With a proper accounting system, you’ll be able to take your eCommerce business to new heights.
Are you an Amazon business owner looking for expert assistance in managing your seller account? Enso Brands offers a comprehensive range of one-stop Amazon services tailored to optimize your performance and maximize your potential on the platform. Contact us today and discover how we can help your business thrive on Amazon!
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