If you're an Amazon seller, you know how important it is to keep track of your expenses and profits. But doing all that bookkeeping can be a hassle—that's where accounting software comes in.
Accounting software makes tracking finances easier and helps you find ways to increase your store's profitability. In this blog post, we'll look at some factors that affect your profit and how accounting software for Amazon sellers can help you reduce your costs.
Expenses vs. Profits
Any business owner, especially those owning a small business, will tell you that profitability is crucial. After all, if a business isn't making money, it will not be around for very long. But there's more to profitability than simply staying in business.
Profitability is a crucial metric for assessing a business's health. It demonstrates whether your Amazon business is expanding, stagnant, or declining. Your profit also provides insights into your Amazon business's competitive position.
Perhaps you're fully aware that operating expenses are a normal part of running a business. These include the cost of inventory, shipping, Amazon fees, and other operational costs. Most businesses also engage in marketing and advertising to reach potential customers.
But what happens when an expense starts to eat into your profits? This is a serious problem that can jeopardize the future of your small business. Unfortunately, accounting mistakes can also greatly impact your Amazon business. Even a small error can cause you to overpay or underpay your taxes, which can exhaust your profits.
Factors That Eat Up Your Profit
Do you want to ensure that your business remains profitable? Then you have to get your expenses under control. If you're doing your own accounting for Amazon, you have to be careful, as simple errors can cost you your hard-earned money.
Here are some factors that can affect your profit in your Amazon business.
Incorrect VAT Registration
You might think that you can save money by skipping out on hiring an Amazon accountant. After all, they can be pricey, and you have a limited budget. But you might not realize that an inaccurate Value Added Tax (VAT) return can cost you money.
As an Amazon business owner, it's important to be aware of the potential effects of incorrect VAT on your business. On the sale of goods and services, there is an indirect tax known as VAT. Inaccurate VAT can result in increased costs as well as fines and penalties.
Errors in Purchase Invoice
Like many small business owners, you probably do your own Amazon bookkeeping. And as an Amazon seller, chances are you're also using their purchase invoicing system. However, a few common errors can occur with this system that can cause problems down the road.
The most usual mistake is when a product's price is listed incorrectly. This can happen if you accidentally list the wrong price or change the product price after the invoice has been generated. Such mistakes can easily result in the profit and loss statement doubling the cost.
Sales Tax Mistakes
In every state where they have a physical presence, Amazon FBA sellers are required to remit sales tax. This includes having inventory in a fulfillment center and having employees or contractors in the state.
Sales tax regulations differ from every state and can change anytime. If you're an Amazon FBA seller, you must be aware of the potential consequences of errors in your sales tax. Penalties and interest may apply if the proper amount of sales tax is not collected and remitted.
Complicated Product Returns
Accounting for product returns can be tricky. First, you must decide when to write off the inventory and ensure that it isn't expensed more than once. Returns can complicate your inventory if you don't have an Amazon bookkeeper and are doing your own accounting for FBA sellers.
Customers typically expect to receive a refund when they return a product. However, if you don't have the return accounted for in your books, that refund will come out of your pocket. Additionally, if you don't track returns properly, it can impact your inventory levels and throw off your other financial reports.
How an Accounting Software Increases Your Store’s Profit
Many ecommerce sellers view accounting and bookkeeping as a luxury—something that can be put off until the business is more established. However, failing to track your finances properly can cost you money.
Even a small error in accounting and bookkeeping can lead to you paying too much in taxes or missing out on deductions. In addition, it can be difficult to make important business decisions if you don't have a good handle on your cash flow.
Here are some reasons why accounting software for Amazon can help you avoid costly mistakes.
Improves Cash Flow
Cash flow is the lifeblood of your business. To succeed, you need to have a system to track your income and expenses. Accounting software for Amazon can help you do just that.
The software can give you an up-to-date picture of your finances by automatically importing your data from Amazon. This information can improve your cash flow by reducing unnecessary costs and increasing revenue.
Automating Repetitive Tasks
Many Amazon sellers know the importance of accounting and bookkeeping, but they don't realize that tools are available to make the process easier. For example, accounting software can automate repetitive tasks such as invoicing, tracking expenses, and inventory management.
While you can certainly do these tasks on your own, accounting software will save you significant time and money. An automated accounting system for Amazon helps reduce errors and ensure that your financial records are accurate, preventing unnecessary penalties or other fees on your end.
Identifying Worst Selling Items and Their Associated Fees
Amazon accounting software not only tracks your sales and Amazon fees but also helps you identify your worst-selling products. This valuable information can help you change your inventory and pricing to improve your Amazon sales.
By understanding which products are selling poorly, you can make adjustments to your listing to make it more appealing to potential buyers. You can also use this information to negotiate better terms with suppliers or eliminate products that are costing you money without providing benefits.
Preventing Inventory From Getting Expensed Twice
Inventory represents a significant investment of capital, but it also needs to be managed carefully to ensure that it remains in good condition. To manage inventory effectively, it is best to use a software program to track inventory levels and automatically update the records when items are sold or expensed. This will prevent situations where inventory is mistakenly expensed twice, which can lead to significant losses.
Set Up the Key to Profitability with Unloop
Many factors can eat into your profits, and it's important to be aware of them so you can take steps to mitigate their impact. But managing everything as a small business owner can be daunting.
With accounting software or an accountant, you can increase your store's profitability by having better visibility into your expenses and profits. At Unloop, we can help you manage your business taxes and finances better by providing accounting and bookkeeping services. Get started by booking a call with us today!