3 Tips to Demystify Amazon FBA Accounting and Stay on Top of your E-commerce Finances

E-commerce provides entrepreneurs with a market to bring their products and ideas to the world. Just like the internet provided publishers and content creators with the tools to reach readers at a scale that was previously unheard of, E-commerce provides retailers with the opportunity to bring their products to end users in a growing number of markets around the world. Amazon has strategically positioned itself at the heart of online retail by providing convenience (amongst many other things) – it’s easier than ever for consumers to have their favorite products delivered directly to their home with just a few clicks, and entrepreneurs have a wide range of tools and services (such as FBA) at their disposal to effectively fill previously unmet consumer needs. In this modern age of E-commerce, it is of paramount importance to maintain quality financial information, and have access to sales income as soon as possible to allow for accurate reporting, an up-to-date understanding of where your business is at, smooth growth and the ability to pay bills on time.

Tip #1: Focus on reducing workload and streamlining your business through automating and outsourcing wherever possible.
In recent years, many software-as-a-service (SaaS) businesses have proliferated the online space, offering solutions that simplify running many aspects of an E-commerce business. By outsourcing and automating as much of the operations of your business as possible, you can spend more time focusing on the actions that grow your business.

Here are some examples of quality SaaS services that can help to optimize the operations of your Amazon business:

  • Fulfillment by Amazon (FBA) is a comprehensive warehousing and fulfilment service that Amazon offers to sellers. They can store, pick, pack and send your products, handle customer service, and returns – potentially removing the need to operate from a physical premises.
  • A2X Accounting is a software solution that automatically retrieves the relevant sales data and financial information from Amazon’s Seller Central, and records and inputs this information into cloud-based accounting software such as Xero and Quickbooks. This reduces the hassle of manually handling financial information and ensures accurate record keeping by removing the human element.
  • Payability provides immediate cash advance to sellers so that they don’t have to wait two weeks to receive sales revenue from Amazon. This helps to alleviate cash flow issues, allows sellers to maintain appropriate levels of stock, and remain in the buy box. This provides merchants with the peace of mind that their business is stable and ready to embrace opportunities as they arise.
  • FBA Inspection is a quality control and packaging contractor service which ensures that products are correctly packaged, labelled and not defective before being sent to Amazon’s FBA warehouses.
  • Feedback Genius is software that follows up with customers and asks for feedback on your behalf. This can help to get more reviews and rank higher in product searches.

If a task needs to be completed more than once, and it can be automated or outsourced, why not have a software program or contractor do the work for you?

Tip #2: Cash flow is king – keep your business liquid and seize opportunities when they arise!
Suppliers need to be paid, sellers need to have stock available, and customers don’t like seeing that their favorite product is sold out when they desire it most. There are always going to be lead times and possible delays when ordering products from a supplier, and needing to wait for Amazon to pay you before re-ordering can represent the difference between gaining and losing business. As mentioned above, Payability provides an elegant solution to help sellers gain access to their revenue almost immediately.

In the E-commerce space, sales of an attractive product can grow extremely fast if consumers decide that they like it. It is not uncommon for sellers to begin selling a product only to run out of inventory in a very short period of time. Having stock available that is ready to be sold and delivered is of paramount importance and cannot be understated – customers don’t want to wait, and there is generally a high level of competition for the ‘buy box’.

By setting up alerts to reorder stock when inventory gets low, and receiving payment for sales on a daily basis through Payability, sellers can be more flexible and embrace opportunities in the market more effectively.

Tip #3: Develop your business with the end in mind.
Having an end-goal in mind, and regularly considering what would be most valuable to potential business buyers forces Amazon sellers to rationalize decision making based on what will maximize the value of the business. This is a broad topic that we cover in much more detail in the A2X Accounting “how to sell your Amazon business” eBook. The following points on value maximization are taken from this eBook:

  • Seasonality of sales can have a strong influence on the stability of a business and regularity of cash flows. For example, a business selling Christmas crackers is more likely to have sales skewed heavily towards November and December. If sales are heavily skewed towards a particular season, look for products to sell that perform better during quiet months.
  • Earnings trends and profit margins – are earnings increasing over time? When sales increase do margins remain the same, or are increases in sales due to discounting? Financial information paints a picture for buyers – if you were a potential buyer, what would you want to see?
  • Provide top-quality accounting information – make sure that your accounts are accurate and detailed. Record expenses in a timely and honest manner and provide additional information where required to show what the funds were spent on (rather than lumping a wide range of expenses in the ‘miscellaneous’ category).
  • Use the accrual accounting method to record financial information. It provides a more accurate picture of the current state of the business and can lead to higher valuations.
  • Aim to reduce workload whilst maintaining or increasing sales. Implement software solutions such as A2X, quality-control contractors such as FBA Inspection and warehousing/distribution solutions such as FBA to make life easier. After all, buyers would rather purchase an easy-to-manage income stream, not a full time job. Even if you aren’t interested in selling your business, automating operations makes life easier down the line…
  • Build the business in a manner that is as scalable as possible. By taking the actions listed above, growth can be achieved without a proportional increase in workload.
  • Supplier lead times – the time taken from order placement to delivery at storage facilities (such as FBA) is very important, especially during busy times of the year. Check if suppliers are willing to hold extra stock during busy times of the year to allow for timely reordering and replenishment of stock.

If you would like a free copy of the A2X Accounting how to sell your Amazon business eBook, grab your free copy here.

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