Wondering how to properly handle your Amazon bookkeeping?
You’ve come to the right place!
My name is Connor Gillivan. I’ve been an entrepreneur for the past 12 years and I’ve sold $25 million+ on Amazon.
In this article, I’ll break down the 8 most common Amazon bookkeeping mistakes and how you can avoid them with your Amazon business.
Table of Contents
Why Is Proper Amazon Bookkeeping Important?
When you practice proper Amazon bookkeeping, you can avoid costly errors. Here’s a list of ways that great bookkeeping can help your Amazon business:
- It helps you to keep your business lean and clean.
- It helps you to save on expenses.
- It helps you to optimize your sales channels better.
- It helps you to see which products are selling the best.
- It helps you to see which months you are selling the most.
- It helps you to see how much in fees you’re paying Amazon.
And much, much more!
Bottom line, getting your Amazon bookkeeping up and running is critical to scaling your Amazon business to 6, 7, and 8 figures.
Mistake #1: Mixing Personal and Business Expenses
If you use the same accounts for personal and business expenses, you will soon get into trouble. You might start to find it difficult to review expenses specific to your business. Personal and business taxes will also become difficult to sort out. You will need to separate each transaction and determine if it’s a personal or a business one. This can later mean that you are not getting the full benefit of very helpful business deductions. Your accountant will also not be very happy because it will put them through more work that is really unnecessary. This also means that you spend more money because it takes them more time to process everything. This only gets worse if you are ever audited.
How to Avoid:
Create separate accounts to process and record all your business expenses. If you are paying yourself out of your business account, then use those funds only to pay for personal expenses. Never mix the two, even if you are a solopreneur. It may seem like a useless step to keep everything separate, but it will save you a lot of trouble in the long run.
Mistake #2: Not Recording All Sales
You may fail to record all your income statement transactions, which are made up of revenue and expense transactions. If you do this, you will end up reporting incomplete revenues. This might make you think that you’re saving on taxes, but you are also understating your net income. This can bring in lower offers if you ever want to sell your business down the line.
How to Avoid:
Make sure that you are recording daily sales. The best place to get it for Amazon-specific sales is your Amazon Seller Central dashboard. You can also use a tool like A2X or LinkMyBooks to connect your Amazon sales directly to Quickbooks or Xero. This way, you can keep a record of all your sales, whether they are cash or credit transactions, plus all cash receipts, which include all collections of accounts receivable. Then, whatever software you or your accountant use can easily process these entries.
Mistake #3: Not Recording All Expenses
We always recommend keeping clear records of everything, including expenses. Yes, it is true that any unpaid expenses that you have on the record are reported as liabilities on your balance sheet. Yes, this means that when you do not record accrued expenses, it reduces your total liability. Yes, in turn, net income increases and your equity increases, too. However, over the long term, this type of fudging the books is not sustainable and can get you into a lot of trouble. Being honest is just good business. Furthermore, it brings peace of mind as you stay on top of real business progress rather than wasting time and money trying to balance everything out in the end.
How to Avoid:
Keep a clear and true record of everything that comes in and goes out of your business. Do not delay recording transactions and keep them all neatly in the same place. Again, this should all be done in accounting software like Quickbooks or Xero.
Mistake #4: Not Reconciling Bank Accounts
When you choose to neglect to reconcile your business bank statements every month, you will likely end up with more errors, and not be able to easily see them. When errors go undetected, it can be costly for your business. Tellers can calculate deposits incorrectly, electronic transfers can get stuck in cyberspace – a lot can go wrong.
How to Avoid:
Make sure that you take the time every month to keep track of all your bank records. Double-check every transaction to make sure that each one ties perfectly with what you have in your own records, and that everything adds up. Don’t let this get built up until the end of the year. You’ll greatly regret it and it will cost you a lot more for someone to clean and catch it up than if you just did it yourself monthly or hiring a bookkeeping service, like EcomBalance or Pilot, to do it for you.
Mistake #5: Not Tracking Inventory Properly
If you fail to properly track your inventory, you could very easily kill your business, or at least prevent yourself from grabbing great opportunities to grow. Inventory errors can stop you from increasing profits because you are operating the business inefficiently. Overstocking, for example, keeps money tied up in products that you can’t sell yet and may end up not being able to sell because customers’ tastes change or it gets too old or damaged. This means that you can’t buy other fast-selling products that are in demand, and you end up simply losing money on the unsellable product.
How to Avoid:
Be careful to track all the items that you have in stock. Make sure you know exactly what you have at all times. There are several software tools specific for Amazon sellers that can do this automatically or can help you with your inventory management. This way, you can also easily calculate when or if you should get more, and what you can afford to spend on a new product.
Mistake #6: Not Recording Amazon Fees
When you fail to record Amazon fees, you are losing track of an important expense that should inform your business strategy, including pricing and volume. These fees also play a big part in how you report income and expenses.
How to Avoid:
As mentioned above, always keep accurate records of every business transaction. It’s a lot easier to remove something that you don’t need than to suffer because you don’t have something that you should. For an accurate report of the Amazon fees that you pay, go to your Seller Central dashboard or use a tool like A2X or LinkMyBooks.
Mistake #7: Not Using the Right Accounting Software
Not every piece of software is created equal. You need to use the one that fits your needs perfectly as an Amazon seller. If not, you will have a lot of useless features and not enough of the ones you need. This means extra time and effort and money spent getting everything right.
How to Avoid:
Spend time upfront looking for the right tool. You will be happier being able to rely on just one or two pieces of software. Your accountant will be happier too, not having to deal with scraps of this and that here and there. We use and recommend Quickbooks Online and Xero as your main accounting software and then A2X or LinkMyBooks as an add-on Amazon accounting software tool.
Mistake #8: Not Hiring a Professional
If you do your books and file your taxes yourself, you are in dangerous territory. Rules can change, and you probably do not know everything that is pertinent to your Amazon business, anyway. People go to school for years to learn proper bookkeeping and accounting. You can’t expect to do it well without investing the time and effort, not to mention having the talent in the first place.
How to Avoid:
Hiring a professional bookkeeper and accountant is vital to the health of your business. Sure, you can learn how to record income and expenses all on your own. But is it worth your time? I have experienced business from both sides and can sincerely say that you are far better off hiring someone to take care of it all. More importantly, hire someone who knows exactly what they’re doing. Bookkeeping and accounting are not as simple as they may seem, and your business financials are sensitive. Professional help is the only way to go. You can check out EcomBalance, Pilot, and Xendoo as options for a bookkeeping service.
Conclusion
Avoid these Amazon bookkeeping mistakes and save yourself a ton of hassle down the road. Don’t fall into the trap of trying to grab short-term low-hanging fruit at the expense of longevity for your business.
If you have questions about managing the bookkeeping for your Amazon business, feel free to reach out to us at Support@EcomBalance.com.
Cheers!
