Prosper Show 2018 Amazon Accounting Panel Recap
The Prosper Show is an annual conference for Amazon marketplace sellers, and the ecosystem of businesses and applications that serve them.
During the 2018 Prosper Show held in Las Vegas on March 13-14, 2018, A2X hosted a live interview panel with four leading Amazon marketplace accountants:
- Scott Scharf from Catching Clouds
- Melanie Shabangu from Avask Accounting
- Jeremiah Kovacs from MuseMinded
- Cyndi Thomason from Bookskeep
During the live panel, audience members had the chance to ask the Amazon accounting experts a range of questions, prompting discussions about the future of Amazon accounting.
Here, we recap the questions put to the panel and their answers, which covered the following topics;
- Challenges, hurdles and common mistakes when selling on Amazon.
- Sales tax and selling internationally
- Technology and accounting software
- The future of Amazon
Plus, check out below how A2X can help solve a lot of the issues that are discussed in these topics.
Amazon Accounting Q&A
Challenges, hurdles and common mistakes when selling on Amazon
What are some of the biggest challenges Amazon sellers face today?
- Seller saturation: The global market introduces overseas sellers that can sell at lower price points than many competitors from within the US.
- Narrow profit margins: The increase in fees from multiple angles puts pressure on smaller sellers. Sellers need to stay attuned to which products are actually profitable and be decisive about those that are not.
- Amazon is constantly evolving: The ecosystem of the platform itself is always changing. Staying up-to-date with your selling strategy can be challenging.
- Tax obligations: Tax requirements are dependent on location, so when we sell in multiple markets, we are open to a range of inconsistent requirements. Governments are cracking down on sellers who are not compliant, so it is paramount to stay on top of your sales tax.
What do you think the biggest hurdles are for Amazon sellers as their business grows?
- Learning to evolve: When you’re growing quickly, you may need to shed systems that worked well in the past. There may be different standard operating procedures that you need as you get larger. It’s important to be willing to change as you grow, and put new systems in place that serve your needs moving forward.
What are the most common mistakes you find with your clients?
- Inexperienced accountants: ecommerce accounting is quite specific and we often see books from accountants that aren’t optimal for the industry. Accountants that aren’t technical and haven’t taken time to learn the Amazon ecosystem and tools available, often don’t know what they are doing. They tend to miss data and try to fill the gaps, which results in quite messy information.
- Missing accounts: this happens often, statements missing information from credit cards, bank accounts, PayPal etc.
Sales tax and selling internationally
If a seller lives in one state and uses FBA inventory, but has no other physical presence in the state (no employees or address), how much sales tax are they obligated to pay, and to whom?
- Less control with FBA: If you use Fulfilment by Amazon, your stock will be moved for you by the ecosystem across the US. This might be based on where it is predicted to sell, and could cover multiple states which results in you having a physical link (or nexus), to those states. And therefore, a tax obligation.
- Registering for tax is a risk management decision: Ultimately, you can choose where to register for and pay sales tax. The legitimate way to go about it is to register everywhere that you have tax nexus, but not everyone goes that route. Many way up the cost and potential impact to the business if they do or do not register in all states, and make the decision based on how much they are willing to risk.
- Auto-collect sales tax: Many states now require Amazon to auto-collect sales tax on behalf of sellers (so that they don’t have to chase individuals), that have tax nexus in those states. If Amazon is collecting tax for you automatically, remember that any other ecommerce platforms you use like eBay, Walmart or Shopify will still require that you manage this yourself on top.
- Income tax: Some states also now claim that if you have economic nexus in a state, you are eligible to pay income tax there. Your inventory presence in a state gives you that income tax nexus.
* Click here for more detailed information about sales tax for ecommerce sellers in the US.*
It appears to be an unfair landscape, because international sellers are skirting their tax obligations for sales in the US?
- Laws would need to change: Whilst this is a big concern, laws would have to change at congressional level to be able to do anything about it. Any tax obligations that international sellers might qualify for are, for the most part, being ignored.
When considering selling in the UK, is VAT something you need to register for before you start or can you do this later on?
- Yes, before you start: Pre-2012, sellers were able to operate in the UK without worrying about VAT up front. This is no longer the case. In fact, some sellers are being investigated for their tax obligations as far back as 2012, so the government is cracking down on requirements going forward.
Check out this helpful guide for everything you need to know about VAT when selling in the UK.
What happens if you buy a business that has neglected its tax obligations? Are you liable for them, as the new owner?
- Add a clause in your contract: Keep some money in escrow for taxes, and add a clause in the contract when you buy that absolves you from accrued tax liability prior to the change in owner. By working with a quality business broker, and putting a solid contract in place, both sellers and buyers can get the most out of the transaction whilst minimizing risk.
- You could be liable: In general, when a business is sold, the assets are transferred into a new LLC. States can go back up to 10 years to get tax from a previous owner. It doesn’t matter if the company has been dissolved, the owner has filed for bankruptcy or whatever, the tax liability still exists. So, protect yourself.
- If you are the seller: You could get sued. If the purchaser gets audited for sales tax and previous liability shows up, they are most likely going to sue the person they bought the business from.
Technology and accounting software
If a seller wanted to explore technology to help optimize their Amazon business, which would you recommend?
- Watch out: When it comes to tech, a lot of sellers fall into the trap of ‘tweak mode’. They are too zoomed in to the day-to-day operations, looking for a technological fix-all and not concentrating on the bigger picture. Start there, and take the time to figure out what you want to outsource and how to optimize that.
- Real-time analytics tools: Such as HelloProfit and Manage by Stats. These are time efficient and super useful for the overall picture.
- Refund managers: Such as SellerBench, RefundSniper and Refunds Manager, are all great for staying on top of problematic returns or unissued refunds. This could become a real issue if you use FBA and have high volumes of returns you need to manually track and update. Sellers often underestimate the amount of work that it takes to stay up-to-date with refund rules and requirements, as well as managing them for your business. Amazon doesn’t always catch everything.
- Cloud inventory tools: These make it far easier to track purchases, orders and changes in inventory - especially if you sell over multiple channels. Without this kind of tool, scaling your business will be challenging.
Click here for how A2X for Amazon can help make your accounting simple and seamless.
Where does the accounting system fit into the data/analytics side of an ecommerce business?
- Accrual accounting: This method is ideal for sellers. You don’t want granular detail clogging your accounts, but you do need everything reconciled to the penny and able to carry over into different months.
- Summaries over individual orders: There’s only a certain amount of data that is useful from an accounting perspective, but it is crucial you have that. You need accurate financial statements to make solid financial decisions.
- Third-party tools for the details: Your accounting system is the 50,000-foot view of your business. It is comprehensive and shows the whole picture. It’s not meant to give you a great deal of detail. That’s where third party analytics tools come in handy, to zoom in. If you try to get either tool to do the opposite, you’re gonna drive yourself insane. Software is built with very specific use cases.
Click here to find out how A2X can automate your accounting process using the accrual accounting method and summaries to give you just the right amount of detail you need to grow.
The future of Amazon
What do you think the future of Amazon accounting looks like?
- More and better software integrations: That hopefully do a better job looking at the bigger picture rather than analyzing granular detail.
- Automation and artificial intelligence: Which will remove a large portion of the accountant’s workload. There will be a shift towards “how do we add value?” and “how do we become a more trusted advisor?”
- Division in accountants: Those who participate in these trends and move forward, and those reacting to the innovations around them. Being a stronger advisor and adding value through communicating strategy and developing relationships is what will ultimately help accountants to keep their clients and grow their businesses.
A2X for Amazon Gives You the Best Tools for Success!
The panel above has discussed a number of hurdles faced by Amazon ecommerce sellers. A2X helps sellers solve a number of these issues:
- Defining profit margins: A2X helps you understand the portion of bank deposits which relate to profit margins, so that you can ensure you only sell profitable products. It can also track COGS (Cost of Goods Sold), so that you can get the next level of detail when it comes to your inventory.
- Tracking sales tax collected: A2X helps you track how much sales tax you have collected, and maps each transaction so that it codes correctly automatically, helping you meet varying tax obligations.
- Complete accounts: Never worry about missing elements of your statements again. Once you have set up A2X, your accounts will be automated and give you just the right amount of data that you need to grow your business. Plus, if you choose to sell one day, you’ll have accurate books to offer the buyer.
- Accrual method: The panel discussed above how important the accrual method of accounting is for sellers. A2X uses this method to give you a more accurate view of your cash flow.
- Journal summaries: The panel also discussed how summaries of information sent to your accounting software is much more useful than individual transactions. This is exactly what A2X does, keeping details available when you need them without clogging your systems.
Ecommerce sellers across the globe are using A2X to save themselves time, make more informed decisions and continue growing their business.
Try A2X for Amazon today for free and see the benefits for yourself!