The 10 Most Common Amazon Accounting Mistakes (and How to Avoid Them)
Estimated reading time: 10 minutes.
FBA sellers stand to make good money if they know what they’re doing.
Around 20% typically make between $1000-$5000/month, with around 10% making up to $50,000/month. The sky’s the limit, but the foundation must be robust first.
And there’s plenty that can go wrong easily, especially in the early days.
Catching Clouds and Bean Ninjas are top ecommerce accounting specialist firms, and in this blog, we summarize their advice for some of the common accounting problems for Amazon sellers.
What are some of the biggest accounting errors they see amongst Amazon sellers, and how can you ensure you don’t fall prey to the same issues?
In this post, the sixth in our Amazon accounting series, we explore common accounting mistakes:
Table of Contents
Let’s take a look in a little more detail.
DIY accounting rather than cloud-based software
We get the attraction of spreadsheets - they’re free, quick and sometimes easy. But they’re not scalable, and when you start weighing up the pros and cons of these versus cloud-based accounting software, it’s a no-brainer.
Automation will not only save you time, but it will save you money and organizational effort too. Nothing is lost: everything is recorded, stored accurately, and accessible anywhere in the world.
Your data is backed up, your system can grow with you, and if you want to share access with certain people, you can control what they see. When you automate your accounting, you’ll open yourself up to a whole world of apps and integrations that are designed to make your life as easy and as profitable as possible - you might not need them all right away, but if you intend to grow, you will later on.
Plus, if you ever want to sell in the future, you’ll need excellent records to tempt buyers.
For serious Amazon sellers and business owners, accounting software is the only way forward.
No separation of business and personal accounts
Are you finding yourself buying inventory with a personal credit card? Or booking trips with your business one?
It’s tempting to do this when you work alone. Trying to figure out the true health of your business and its performance when these are integrated with your personal life is an avoidable headache.
It will also be a nightmare pulling together financial reports for your business if you want to sell it one day. Sure, you might not be thinking about that now, but start off on the right foot just in case and you might make more money as a result.
Set up your Amazon bookkeeping on the cloud and keep any and all business expenses there. Don’t mix church and state, keep your personal accounts and business accounts separate. And if you’re serious about growing your business, consider registering it officially.
Not accounting for Amazon fees
(From 0:35 in Patti’s video).
Patti finds that her clients will often code their Amazon bank deposits as sales, but this is a mistake.
The money arriving into your bank account is your cut after Amazon has taken fees. These can be anywhere from around 15-40% and have a habit of increasing over time:
“We just found out in January that almost all of our clients noticed that all their fees from Amazon went up. If you’re not paying attention to that, you don’t know.”
- Patti Scharf
Accounting for Amazon fees is potentially one of the greatest challenges for that platform in particular. There are a lot of them, and statements aren’t always the easiest to interpret.
By integrating A2X with your Amazon account and accounting software, all your bank deposits are automatically broken down, calculated and posted to your books. You’ll know exactly what fees you were charged, and you’ll have the data you need to calculate profit margins, revenue and expenses.
Relying on settlement statements
(From 1:58 in Patti’s video).
PSA: settlement statements are not the whole story. They don’t give you all the information you need to complete and reconcile your books accurately. They do not show you how much sales tax you have collected, for example.
In addition, each statement might cover just a week or two, and cross over months, so when it comes time to reconcile, it’s easy to misinterpret your sales for a specific month.
“…that means you can’t track what you’re selling over time, you can’t track fees over time, it’s all just kind of a hodge-podge…”
- Patti Scharf
A2X also solves this problem for sellers. As well as telling you what fees you’ve paid, it tells you how much of anything else you have either collected or spent before receiving a bank deposit from Amazon. It also splits statements by month, giving you accurate, month-by-month data.
Not summarizing Amazon business bookkeeping
(From 3:26 in Patti’s video).
Downloading your individual orders from Amazon will give you complete information about sales, but large spreadsheets of all this data become an issue when reconciling against batch settlement statements.
A lot of Amazon reports don’t match each other. Even selecting the same periods on two different reports might show inconsistencies.
In addition, a large quantity of information is not handled well by certain accounting software for Amazon sellers of a bigger size. Ideally, information should be entered in summaries.
“If you’re selling 10 orders a month, it’s not a big deal. If you’re selling 10,000 orders a month, it is a big deal… it’s going to crush your system because your accounting system was not built to house all of that information.”
- Patti Scharf
A2X deals in journal summaries. Rather than sending individual orders to your accounting software, A2X summarizes your bank deposits into journals which are sent, keeping your books organized and software working at peak efficiency.
Revenue and Sales Before Gross Margin
Many FBA sellers seem to rely too heavily on what their bank balance is telling them. If sales are trending up on Seller Central, and there’s money in the bank, then things are going well, right?
Well, not necessarily.
What can happen is that sales increase, but over time, it doesn’t look like their bank balance is following suit - so how does that work?
This happens when sellers are focused on topline revenue (sales) at the expense of gross margins. Increasing sales is far from the only thing a successful FBA business needs to do.
Cost of goods sold needs to be considered, listing fees, sales tax, marketing and acquisition costs, paying yourself or others - all these things will affect not just your bank balance, but the longevity of your business. So don’t forget them.
Having a great accounting software stack behind your business will enable you to keep track of everything. What does this look like? Cloud accounting software integrated with A2X is the first step. After that, the ecommerce app world is your oyster! Find out your options for Amazon automation and how to prioritize here.
Not tracking the cost of customer acquisition
You don’t get every customer for free. In fact, if you take Amazon referral fees into account - none of your customers come free.
Amazon ads can be an effective and lucrative way to generate more sales. But they can also be a money sink.
If you don’t keep a close eye on how much your marketing is costing you, profit margins will soon shrink.
Keep a close eye on your ad campaigns. Set a budget, notifications, goals, and milestones. This way, you can pull the pin if something isn’t working, or tweak to ensure it does.
Not reviewing reports regularly
In part one of our Amazon accounting series, we talk about setting up your Amazon accounting for success right at the start. One of the tips we mention is to make a date with your books.
At least weekly, if not daily.
You never want that anxious feeling that comes with looking at neglected accounts through squinted eyes. What will you find? Is it as good or as bad as you think?
Your financial reports are your business’s compass. So don’t ignore it, and certainly don’t lose it. Without it, you’re flying blind.
Schedule your regular accounting check-ins. With regular checks, you can spot trends, anticipate sales, track progress, get to know your business’s weak and strong areas more quickly and plot your next move with confidence.
Plus, if you’ve got an automated accounting stack onside, these checks should be pretty quick and tell you everything you need to know with minimal input or effort! What’s not to love?
Not finding and eliminating single points of failure
According to our accounting partners, the following scenarios can and do happen to Amazon FBA sellers all the time:
- A top-performing product doesn’t sell for a month.
- Another seller started selling one of your products for half the price.
- Amazon freezes and locks you out of Seller Central and your business.
When all your eggs are in one basket, you are vulnerable. You have a single point of failure that could destroy your business.
For this reason, even just relying on Amazon as your only sales channel is risky.
Don’t just look at what your accounts are telling you. Use them - they are your compass. If your finances indicate that you have single points of failure, come up with ways to diversify your sales channels
Not treating your business and accounts as a product
Michael Gerber is considered one of the top small business gurus in the world. In this blog, he discusses how and why many Amazon businesses fail.
One of his top tips is to treat your business as a product, and that starts with your accounts.
You need to work on as well as for and in your business to create a sellable, desirable product.
“The minute you begin to see your company as a product, you realize there’s an opportunity for every single one of you to approach what you do every single day in a completely different way than you do today.”
- Michael Gerber
Statistics show that most small businesses fail. This is often down to depleted capital, energy and desire to continue.
By setting out in the beginning to create a company that will sell, even if that’s not the goal from the offset, you separate yourself from the entity and work differently.
Your accounts become your winning or losing hand, they are what a buyer would want to see. Knowing this, keeping them organized and healthy becomes a much higher priority.
The Bottom Line
Your Amazon business and accounts are a product. Work on them regularly, and make it a priority to stay on top of everything that costs you money, as well as everything that makes you money.
Is your business vulnerable? Could it be made more resilient? Would you be confident sharing your books with a potential buyer?
The tools exist to help you achieve every goal in this list, and if you’re unsure which to start with, consider enlisting the help of a specialist to get you set up. Find our trusted directory of accountants here.
Next in the Series…
This blog is the penultimate in our Amazon accounting hub series.
If you’ve been with us so far, you’ve covered all the setup steps for your books, how to choose accounting software, interpreting and managing Amazon fees (including FBA), nailing your taxes, and these common mistakes to avoid.
The final chapter is all about when and how to hire a specialist accountant to help you. And don’t forget, we have plenty more Amazon seller resources over on our blog.