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Do You Know How to Do the Accounting for Your Amazon FBA Business?

Posted by Paul Volen in Resources

Running an Amazon FBA business requires keeping track of multiple different details in the company. It’s not just important for your own individual purposes in having good accounting and nice clean books so that you can properly manage your cash flow and inventory but it becomes even more important when you intend to sell your company to someone else in the future.

Accounting mistakes could even block the sale entirely or make it impossible for you to effectively transfer the business to another party. This is why it’s a good idea to partner with an experienced and trusted business broker to assist you with the process of organizing your books. You should do this well in advance of deciding to list your company for sale in order to get the maximum benefit. The support of a business broker is instrumental in helping you understand the current landscape when it comes to listing your business.

Many things have changed in the light of covid-19 and for this reason, you need to be mindful of how you need to proceed and action steps that you can take to make your business even more appealing as a result of ongoing strategy and updates. Proper accounting is crucial and you want to have nice clean books that you can pass off to a new prospective buyer when they are interested in purchasing your company. You’ll thank yourself for doing this when someone can easily look into those books and realize the hard work you’ve laid out in the process.

Our knowledgeable business brokers can help you to accomplish this goal.

Over 50% of Amazon’s revenue comes from FBA sellers. If you are a new FBA seller, this means you have plenty of opportunity to be successful but you’re stepping into a highly competitive market. The more you can organize your accounting and your books, the easier it will be for your current team operations and to put together a compelling offer for the future. The most important thing to remember is that you should avoid at all cost creating any self-inflicted problems.

Not having a firm grasp on your numbers can turn up as a problem for you when it comes to tax time but it can even lead to bankruptcy if it’s ignored. Here are some of the most important tips to keep in mind as you grow your Amazon FBA business. These mistakes could be catastrophic, so look for ways to improve them now and engage the support of experienced financial professionals to help you get there.

Ignoring Gross Margins

It’s definitely important to focus on revenue and sales whenever you can. Far too many FBA sellers, however, edge too far into the world of bank balance accounting. They see that their sales are going up and see money in the bank, so overall things look good and they don’t dive deeper into those numbers to get a better perspective on what is involved and what has room for improvement.

There are many different costs that go into managing a profitable FBA business besides just increasing your sales. So when sellers focus only on top of line revenue or their sales at the expense of looking at gross margins, problems can occur when you see that sales are going up but the bank balance is declining or even staying the same. Make sure that you are factoring in all of the different expenses associated with advertising and running the business.

Some of the most common expenses that pop up include Amazon listing fees, marketing costs, costs of goods sold, paying your team and yourself and sales taxes. If you notice that these expenses are rising quickly or that you adjusted them up after seeing a couple of weeks or good months, you could be in for a serious problem if the bank balance isn’t matching these overall numbers.

Using Spreadsheets Instead of More Comprehensive Accounting Solutions

You need to keep everything in one place, not just for your own purposes of quick review but also for providing it to your accountants come tax time. This information will also be important if you ever decide to sell your Amazon FBA business and need to engage the services of an experienced business broker to help you get there. There are plenty of different software tools out there that can make it much easier to track all of your pertinent members rather than trying to keep them in spreadsheets.

Spreadsheets might not be reliable and require you to update them every single day and categorize them against any expenditures, such as those coming from a bank account. It pays to use small business accounting software to connect this to your number so that things can be automatically cataloged. One of the biggest advantages of these software programs is that you can sync data from your seller central account and your bank accounts, which greatly speeds up the process of doing your bookkeeping and reduces the chances that you could make a catastrophic error when it comes to spreadsheets and your data.

This also removes the problem of not knowing exactly how many expenses and which expenses you have. If you were managing these on paper and shoving them in a box or a file folder at the end of the month, this means that you can encounter the problems listed above such that you don’t realize how much your expenses have risen in connection with your overall sales.

If you keep up with your bookkeeping on a monthly basis by using one of these software programs instead, you can effectively catalog all of these expenses and minimize the potential problems that can emerge. You’ll also be alerted to problems sooner rather than later so that you can take quick action and ensure that you’ve thought about all the key issues.

Mixing Business and Personal

Any business owner knows that it can be very dangerous to mix your personal and your business expenses. It’s helpful to start treating your business like a business from the moment that you found it. Even if you haven’t yet made your first dollar on Amazon FBA, think of your company as a business and make sure that you include a business bank account as part of that overall process. It’s very tempting to mix your personal and your business finances but this also clouds things from an accounting perspective because you won’t have a realistic view of how the business is performing.

This makes it a lot harder to make decisions on the fly and it also has sloppy bookkeeping implications for when you decide to sell your Amazon FBA business. When you instead have this information separated, you can easily get a quick snapshot through your accounting software of how the business is performing so that you can make important day to day decisions like how much to spend on ads, how much inventory you need to order and at what intervals.

A big reason to get in the habit of separating your finances now is to ensure that you have a streamlined bookkeeping for the foreseeable future, but it’s also extremely helpful if you intend to sell your Amazon FBA business in the future. Investing in the time today could mean significant benefits down the road. It could even lead to higher multiples at the time of sale. When you have comprehensive bookkeeping software that shows a strong track record of keeping all of these various details in order, a prospective buyer is much more impressed and convinced that the numbers and material you’ve been sharing with them is indeed accurate.

Ignoring Customer Acquisition

A customer is a customer, right? That’s not true. Not all customers are created equal and no one should understand this as well as an Amazon FBA seller. When you are pouring money into Amazon ads, for example, you can see more sales growing. But sales don’t always mean that you are growing your revenue or your profits at a meaningful amount. By failing to keep a close eye on how much money is going into these expenses, you could easily be fooled into thinking that your spend is doing fine, but you could actually be bleeding money.

It’s a far better idea to make sure that you have regular intervals to check in on your Amazon ads and to make sure that you have made adjustments as necessary. Look at your customer acquisition costs and have flags built in place so that you are alerted sooner rather than later if they seem to go up. You might even use a PPC agency or freelancer to help you keep these customer acquisition costs in line if you know your target numbers and are struggling to meet them on your own.

Set It and Forget It Financial Reporting

So you’ve finally set up an accounting software and you are mindful of your customer acquisition costs, but this doesn’t mean that your financial management skills need to stop there. You wouldn’t step away from your business or try to sell it without having a clear view of how it’s performing. Don’t set up these materials and reports and then fail to look at them ever again. Far too many FBA sellers have made this mistake and have not been able to sell their business successfully or claim the multiple they were hoping to achieve as a result of doing so. You have to think of your financial reporting as a regular activity. When you are reviewing these reports, you’ll get access to early data points or even patterns overtime that can help you make adjustments. This is just smart business management that helps you avoid catastrophe. Spot trends, see your overall sales velocity and track your progress as a company by using this data so that you can make informed decisions about what, if anything, you need to do next.

Ignoring Points of Failure

Everyone will have different struggles in their business but it’s important to not only capture these points of failure but to decide how you are going to respond to them. Do you have plans and contingency plans in place in the event of a variety of common scenarios? For example, imagine that a vast majority of your revenue and profit is driven by one specific product. What would happen if the sales of that product tanked significantly over the course of a month? Would you have the data, the skills and the ability to pivot very quickly in order to keep this from happening to you? What if another competitor steps into the market and is selling your products at a much lower price?

All of these things have happened to other FBA sellers and you’ll want to do everything possible to prevent them happening to you. When you rely on one thing and don’t have a backup plan if that data point were to change, you create single points of failure that could disrupt your entire business and make it far less appealing to a prospective buyer.

This is known as diversification and even though it’s easy to get fooled into a sense of security in your Amazon FBA business that everything is doing fine, these single points of failure can have far reaching implications for you in the short term. Your business might not even make it to the point of being able to be sold to somebody else because of these single failure points.

Do everything you can to avoid them by using the reporting and software tools mentioned above to craft a comprehensive plan of how to avoid these challenges. A business can only be successful if it’s viable, not just for you but for the perspective of potential future buyers. Look for single points of failure and engage with experts, consultants, and leading software and strategies to help account for these. Running a profitable Amazon FBA business is definitely a big undertaking but it is also completely possible. When you have the support of the right professionals and have taken all the necessary steps to minimize single points of failure, you have the potential to do great things with your Amazon FBA business. You need to be comprehensive and consistent about checking back in with this data and reporting so that you can make informed decisions at each stage of the process. If you are curious about what to do once you have made the decision to sell your Amazon FBA business, schedule a consultation with a trusted business broker.

Our knowledgeable business brokers have helped many different Amazon FBA sellers navigate through this process and sell their business for the maximum multiple. You deserve to have that experience too. Trust our dedicated business brokers who can answer all of your critical questions about getting your company back on track today. If you know that you have a revenue-generating Amazon FBA business and hope to sell it even a year from now, you could also benefit from consulting with business brokers who can advise about some of the metrics you can address today to have a greater likelihood of selling your company tomorrow. In and of itself, this can be overwhelming to try to manage it all on your own but the good news is that you don’t have to. Scheduling a consultation with a business broker can help give you the roadmap for the most important metrics and details to keep track of.


Don’t Look Only at Traditional Valuation Metrics When Selling

An important part of getting everything right when you list your company for sale is knowing that you understand the valuation process. This means carefully thinking about how to proceed when you’re working with a business broker so that you know what’s reasonable and whether there are any accounting issues that could potentially hold you back from being successful in your business. These accounting issues might become the top focus for you and your team before the company is listed for sale, thus allowing you to get a bigger multiple on your Amazon FBA business.

If you’re selling a middle market company, it’s in your best interests to look at many of the different metrics that could influence your ability to sell the company. Positioning the company the right way has become increasingly important as many people are wondering what the world of selling a business will look like after the pandemic.

In today’s environment, being successful likely means partnering with a knowledgeable business broker and that also means looking beyond traditional valuation metrics to present a full and comprehensive picture to a prospective buyer. Earn outs are one of the most powerful strategies for bridging the valuation gap and being able to get the best possible sale price for your company both during the pandemic and after the pandemic has passed.

Many middle market companies have had to take a significant step back and think about economic uncertainty. This is because plenty of owners are thinking about whether or not to sell their business. Some might choose to sell sooner rather than later because of a variety of different issues, such as realizing that they are ready to move on, liquidity issues or concerns over future prospects. Even if you’ve already come to the conclusion that you’re ready to sell your business, there’s another part of this equation that must be factored in as well; whether or not there is an existing strategic buyer who is ready to pay a price that is acceptable to you.

Traditional valuation metrics therefore might not apply as you’re getting ready to sell your company. In today’s environment, this means that earn outs should become front and center for a conversation with your experienced business broker. This gives the seller a future consideration that is tied to financial goals determined in advance. Earn outs will likely become more prevalent in the coming years for selling businesses. Earnings prior to depreciation, taxes, interest, and amortization were the most important metrics to look at prior to the impact of the pandemic. Comparable transaction values were also explored. However, these might not be as relevant for today’s buyers of businesses.

What to Consider with a Business Broker Selling Your Amazon Company

Discussing things over with your knowledgeable business broker can be a great starting point to decide the most beneficial strategy for going forward. For example, you might ask questions, such as:

  • What parameters should we use to maximize the earn out?
  • Which metrics will be most helpful for selling the company?
  • Which provisions should we include to ensure that the buyer keeps separate books from any other businesses?
  • What prohibitions will be put in place about the buyer selling company assets?
  • How will the day to day operations of the business be handled?
  • Have all earn out tax considerations been appropriately considered?
  • Have we created reasonable periods for earn outs that will appeal to a variety of different buyers?

All of these considerations and more can be discussed directly with your business broker. Even with current conditions, our knowledgeable business brokers continue to work with both buyers and sellers who need help navigating the process of finding or exiting a company. We’ve used our years of experience helping people with this process to provide a best in class experience. We know it’s hard to handle all these aspects on your own, but a supportive business broker can help you get the accounting organized and assist with the other aspects of getting the most out of your sale.

Don’t hesitate to reach out today. You can also review our dozens of testimonials from happy clients! We’re proud to have earned a reputation as some of the top business brokers online today.