1) You Need a Good Double-Entry Accounting System
Don’t get me wrong. All those raw data reports at Amazon are great. But knowing how that information translates into either black or red on your financial statements is another matter.
One of the biggest failings of online shopping carts and performance tools is that they lead many of their users into a false sense of knowledge. Amazon sellers start out thinking that all they need to do is track key performance indicators (KPIs), and that’ll tell them everything they need to know about their business. But that is a far cry from reality.
They don’t tell you if you have enough cash to buy more inventory next month. They don’t tell you if you are able to cover payroll this month. They don’t tell you if you’ve been profitable enough to take money out of the company for yourself.
It’s critical for any business owner, online or not, to know their numbers inside and out. Reconciling bank and credit card accounts is how you verify that you’re working with real numbers. If those numbers aren’t living in a general ledger like Xero or QuickBooks Online where you can match them against the dollars that are actually flowing in and out of your business, the data should absolutely be taken with a grain of salt.
2) You Need Better Reports
So right about now I know you’re thinking, “Cool. I’m ahead of the game. I’m using Xero, and I get all my information broken down on the settlement statements from Amazon. Easy peasy. I don’t need any special tools or anything else to do the job.”
Believe me, I feel ya’. Been there, done that.
Here’s what I’d like you to do for me, though… take a look at the following settlement statement.
Now tell me a few things:
- How much sales tax did you collect?
- How much of your income was earned in in April?
- How much of your fees related to May?
- How much of Amazon’s fees were for long-term storage fees?
It’s awesome that these settlement statements match exactly what landed in the bank account… at least you can reconcile the cash. That’s half the battle. But if your reports aren’t giving you information necessary to manage your business… you’re missing something big.
Now, you may not be able to make Amazon give you better reports, but you can definitely implement tools like A2X to make reliance on the standard reports unnecessary.
3) You Need to Care about Sales Tax (I’m Talking to You FBA’ers!)
First a Little Background on Sales Tax
Most everyone, even my 13 year-old daughter, is aware of sales tax. You buy something at a store, and you pay tax on it. Done.
If you’re the owner of the store, it’s not quite that simple, of course. You collect the applicable sales tax (a requirement even if you’re an online seller), and then you file sales tax returns and remit the funds to your state, county, and city government.
The trickiest part for most Amazon sellers is how to determine where they are required to file. This responsibility is aligned with wherever you have “nexus” (business presence) which, generally speaking, matches where you have employees, sales representatives, and property (including inventory). If you sell on Amazon FBA, you essentially wind up with nexus wherever Amazon houses your wares… which is 20+ jurisdictions and growing.
Historically, it has been extremely difficult for small online sellers to 1) determine how the sales tax rules apply to them, 2) figure out which customers should be assessed, 3) figure out how to collect the sales tax, and 4) learn how to calculate and remit the sales tax. The whole process is so difficult that a large portion of them just ignore the requirement altogether and hope they don’t get caught.
For the end consumers, it is ultimately their responsibility to pay sales tax regardless of whether or not the seller assesses it. So if they are supposed to pay sales tax, but it’s not collected by their vendor, they are required to pay the equivalent tax as a “use tax.” This is a self-reported tax, and since virtually nobody apart from accountants is even aware of the existence of use tax, use tax is rarely remitted.
So… consumers are oblivious to their use tax obligations, and sellers are ignoring their sales tax collection obligations. And the government is sick of it.
Colorado and many other states are now actively working to make you pay attention and adhere to the law. It’s a big deal for online sellers in general, but it’s a HUGE deal for people who sell using Amazon FBA.
All of the above are what I would consider absolute must-haves for an Amazon seller, but there are other ways to really take your business to the next level. Please join us on November 2, 2017 at 9:00 am MST for a free webinar, Essential Tools for an Amazon Seller, to learn more about tools for sales tax, cloud inventory, real-time analytics, and more.