Amazon provides a stepping stone for business owners to chase success. However, before getting to the top, there's a steep learning curve, and for new Amazon sellers, it can be overwhelming. Crucial mistakes can be the downfall of a business, but these mistakes could be avoided.
In this blog post, we'll list down some of the most common mistakes that Amazon sellers commit and give you some tips on how to avoid them to jumpstart your Amazon business.
5 Mistakes Ecommerce Sellers Should Avoid
When starting a new business, there is room for errors, but you can't afford to do the same wrong things again and again. So here are some common mistakes you should keep in mind.
Still using the traditional way of accounting.
Many small business owners try to save costs in their operations. Spreadsheets are tempting to use over accounting software because they are free, but in the long run, manual accounting has more cons than pros.
Spreadsheets will involve you manually inputting and updating data. It's also prone to data breaches because it has little to no security system. Furthermore, manual accounting makes you more prone to errors. The time-consuming work you spend on accounting and fixing your errors could be allocated to more pressing parts of your business if you opt to use accounting software instead.
No inventory management system.
If you are selling multiple products, you should know that some of your products may be in demand during certain seasons. Unfortunately, new sellers forget to take advantage of the knowledge to increase their sales. An inventory management system will tell you which products give you the most profit and when.
So, when customers scramble online to buy your products, they won't find them out of stock. Many sellers miss the opportunity to increase their sales by not keeping track of their inventory. A profitable Amazon business knows when to stock its products and put them up for sale to maximize its cash flow.
Forgetting sales tax.
Sales tax compliance is a must if you have a product-based business. One common mistake of new sellers is errors in sales tax calculations. Keep in mind that sales tax varies depending on which state you sell your products in. Your job as the merchant is to gather these taxes and send them to the appropriate tax collection agency.
Wrong sales tax can be a bad hit for your business. This will incur penalties, which might be detrimental, particularly for small operations.
No Amazon bookkeeping software in place.
Keep in mind that you cannot control what you cannot see. Therefore, ecommerce bookkeeping is essential to determine if you have a healthy cash flow. It helps you identify where your resources are going and if your business is making a profit.
Not to mention organized and clean books will help your business. You can use it for bank loans, IRS audits, and as pitches for business sponsors and partners.
No separate bank accounts for personal and business transactions.
When you buy items for your inventory, what money do you use? Do you use your business card or personal credit card? When you run a small business on your own, you may think combining your personal savings account with your business accounts is hassle-free.
But in the long run, it will cause more headaches. When you need to make financial reports, how will you differentiate your business transactions from your personal ones? How can you tell if your cash flow is balanced and healthy? Start your business on the right foot by opening a committed bank account for your business.
Best Accounting Practices for Amazon Sellers
Now that you know what areas you’re getting wrong, you can take precautions when facing them. Here are some recommended practices to assist you in managing your company's accounting.
Take advantage of Amazon seller accounting software.
Quality accounting software will make managing your finances convenient. First, it makes your accounting processes automated. You can ensure that all your financial transactions are recorded and always updated.
Additionally, cloud-based accounting software is simple to use, even for those without a background in accounting. This online accounting solution is easily accessible, highly secure, and cost-effective. As a result, you'll spend less time doing more accurate accounting.
But aside from recording your business transactions and creating business reports, accounting software has add-ons to help you with other areas of your finances. For example, some accounting software for Amazon sellers has built-in sales invoicing. This feature allows you to send invoices to your clients seamlessly and even receive their payments directly through the software.
Look for the right accounting software to provide solutions for your business needs. It can range from inventory tracking, payroll, online bookkeeping, track sales tax, to even cash flow analysis. There are also accounting software that sync to the Amazon Seller Central account automatically.
Set up multiple bank accounts.
Profit and loss reporting will be hard if you can't recognize your personal funds. Set up a bank account that's purely for business purposes to make bank reconciliation more convenient. Then, when you compare your bank statements to financial reports, you won’t mix and confuse them with your personal expenses.
Always validate your tax obligations.
Paying taxes is inevitable even for ecommerce businesses, and you must get your tax obligations right. There's always ample time to prepare before tax season. Make sure to know all the tax compliance regulations you should follow. In addition, you should know the tax rates, filing, and payment deadlines.
Also, be aware of Amazon marketplace’s sales regulations. Certain charges apply internally. For example, if you're tracking sales tax data on Amazon, you will notice that they charge higher than what the law states. Because they automatically collect the sales tax for sellers and calculate them, you can ensure you send the proper amount to tax collection agencies.
An additional fee is charged for this service.
Starting an Amazon business is easy, but learning to be a profitable Amazon seller has a steep learning curve. You need to handle your marketing strategy, advertising, and products, and on top of that, you are also responsible for your accounting needs. With a lot on your plate, it can be overwhelming, and mistakes can be easily overlooked—especially those involving accounting.
We hope this article helps you prevent these novice mistakes and helps you manage your finances better. However, it is also helpful to seek the help of professionals. Unloop offers Amazon seller accounting to help keep your business above the water in this cutthroat business environment.
We have experts that will ensure you get your number right—from taxes and expenses to sales. Book a call with us now and learn more about our services.