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With millions of customers and countless purchases, Amazon has been the go-to platform for eCommerce sellers. No surprise there. Curious about how they deal with taxes? The Amazon sales tax report for purchases is a document that details the taxes levied on Amazon transactions. And these reports do not go unchecked.

In this deep dive, we will unravel the complexities of this report, exploring some of the most important details it should contain. Let’s shed some light on the tax collection process and sales tax rates.

So, what are the details in an Amazon sales tax report? Here are some!

Sales Taxes

A sales tax is a consumption tax levied on goods and services. It is the kind of tax that should be collected from the final consumer of goods and services sold in a marketplace.

Sales tax rates vary depending on a country's sales tax law. There is no national sales tax law in the United States. Hence, there is no uniform rate, and it will depend on the state where you have nexus.

Unless you live in states or provinces that don't charge sales tax, a purchase will be subject to two kinds of sales tax: the state or federal tax rate and the local tax rate of the area to which it was sent. Some goods may be exempt from sales tax. For example, many governments generally exempt sales tax for necessary goods, like food, drinks, or groceries.

Not remitting sales tax or the wrong amount can get your business audited and fined. Therefore, staying on top of your sales tax is extremely important. With that, here are the tax rates for Canada and the US, respectively.

Canada Tax Rates

Canada has three tax types: General Sales Tax (GST), Provincial Sales Tax (PST), and Harmonized Sales Tax (HST). Quebec Sales Tax (QST) is a rate specifically charged for this province, while Retail Sales Tax (RST) is specifically applied in Manitoba. 

Here are the rates for all sales taxes in Canada. You'll see these in the Amazon sales tax report. It pays to know the rates, as not all marketplaces handle sales tax calculation, collection, and remittances. Also, in case Amazon does not cover the other sales tax applied in a province, you’ll know.

Source: Sales Tax Rates by Province, https://www.retailcouncil.org/resources/quick-facts/sales-tax-rates-by-province/ 

Sales Tax Rules Depend on the US State

The United States has 50 states, each with its own sales tax rates, rules, and regulations. Unlike Canada, where the package destination is the basis of the sales tax rate (unless stated otherwise), US states have different rules. 

Some states base the rate on the package's source and others on the destination. Hence, aside from the different rates, check whether to apply the rate in the location of your business address or the rate of the state where your customer resides. 

Here are the details of sales tax rates in America:

Sources: 

US Range of Local Sales Tax Rates, https://www.salestaxinstitute.com/resources/rates 

US States Sales Tax Rates, https://taxfoundation.org/publications/state-and-local-sales-tax-rates/ 

Taxable Products

Knowing which products are taxable and which are not will help you understand sales tax reports. Only tax-levied products show up on these documents.

Most products are taxable; you must charge your customers' sales tax if you sell a taxable item. If you do business in several jurisdictions, especially when selling online, you must charge different sales tax rates depending on the state or province. To do this, you have to establish a sales tax nexus. 

A sales tax nexus means your business has a “presence” in a particular jurisdiction. This presence subjects your business to that state's prevailing income and sales tax rules. For instance, if you sell products that need to be stored or shipped to a particular California, you must establish a nexus in that area and collect sales tax too.

Another way to establish a sales tax nexus is through intercompany transactions. For example, if you sell goods used by another company and delivered on behalf of its customers, you may be required to file taxes in that company's jurisdiction.

On the other hand, if you sell digital goods like music downloads, software subscriptions, or other intangible property, you don't need to report these transactions because they do not require storage space and physical delivery. 

Tax Exemption

Aside from not having a nexus, another reason why some items won't be charged with sales taxes is because they are tax-exempt. No sales tax amount will be attributed to these purchases in the report.

Amazon has the Tax-Exempt Program that exempts individuals and groups from paying sales tax. To enjoy this benefit, your customers must submit complete tax information and documents on the Amazon platform. 

Canada's Tax-Exempt Groups and Individuals

In Canada, there are three basic instances when buyers can be tax-exempt:

1. Business Income Below $30,000: Buyers can show that their worldwide business sales do not reach $30,000.
2. Seller of Essential Goods: Almost all products sold on Amazon are taxable, except essentials and groceries. If Canadian law classifies goods as tax-exempt, buyers shouldn’t be charged sales tax.
3. Special Groups: Canadian government employees, members of indigenous groups, diplomats, and other groups and individuals classified by Canada as tax-exempt should be absolved from paying taxes.

US Tax-Exemptions

Like in Canada, there are also tax-exempt individuals and groups in the US: 

• Government workers 
• Diplomats
• Non-profit organizations 
• Charitable groups 
• And members of indigenous groups 

These clients must upload a tax-exempt certificate and other necessary documents to Amazon. Then, Amazon processes the documents through the platform’s Tax-Exempt Program.

Frequently Asked Questions on Sales Taxes

After knowing the details in an Amazon sales tax report, let's check out some of your questions as a newbie seller. After going through these, you'll be ready to view your sales tax report and understand who's in charge and what happens during its calculation, collection, and remittance.

Does Amazon Collect Sales Tax?

Yes, because of the Marketplace Facilitator (MPF) Law, which is unique to each state. This law cites that third-party sellers like Amazon should handle the collection, filing, and remittance of sales taxes. 

Customers pay a one-time sales tax whenever they buy products and services on Amazon. The buyer will pay the sales tax for the purchased goods and services, and Amazon will only collect, calculate, and remit the sales tax. 

The sales tax collection services provided by Amazon as a marketplace facilitator are free. The process is streamlined and requires minimal participation and input from the sellers—making it efficient for business.

There was a time when this law didn't cover Canada. Thankfully, MPF now applies to the country. Unless otherwise declared by specific provinces, Amazon will handle the collection, filing, and remittance of the sales taxes charged to your customers. All you have to do is track and ensure accuracy.

What Are the Steps to File and Remit Sales Tax?

There are three main steps in filing taxes: 

• securing a sales permit, 
• collecting sales tax, 
• and remitting the sales tax. 

Let's check the steps one by one.

Secure Sales Tax Permit

Before you can collect sales tax, you have to secure a permit. Without a permit, sales tax collection is illegal. You can find forms on your local revenue website and register your business.

Once you complete your registration, the tax collection agency will give your filing frequency. It can be monthly, quarterly, or annually, depending on your business's sales volume in a certain period.

Sales Tax Collection

After securing the permit, you can now legally collect sales tax. Amazon has a tax collection system that will handle collection for you once you input the correct settings. Tax charges may depend on whether the product sales are origin-based or destination-based.

Origin-based tax calculations mean that you follow the tax rate of where your business is located. 

In comparison, destination-based calculations will consider the tax rate of where your products go, regardless of location.

Filing Sales Tax

Tax collection authorities will usually ask for sales tax reports and other business statements when you file for sales tax returns. You can easily find different reports in your Amazon Seller Central account. If you want comprehensive reports, you use accounting software to generate more detailed ones for your business. In addition, make sure that all the data in your tax returns are valid to avoid any issues and penalties.

How to Generate a Sales Tax Calculation Report?

Amazon sales tax reports are useful in helping sellers provide transparency to their customers. Although sales taxes are already handled on Amazon, they aren't the same as other platforms, so you must run them independently. 

If you are wondering where to get such reports, you can do it through Amazon Seller Central Account Settings. To download any Amazon sales tax report, follow these steps:

1. Log in to Amazon Seller Central and navigate to Reports.
2. Then, click the Tax Documentary Library to see the sales tax report.

3. Next, you should generate a tax report by selecting a report type. You can develop two sales tax reports on Amazon: the Sales Tax Calculation Report and the Marketplace Tax Collection Report. The Sales Tax Calculation Report is useful if you must collect and remit sales tax and any associated sales tax liabilities. On the other hand, the Marketplace Tax Collection Report documents sales tax collected and sent by Amazon on behalf of sellers. 

4. When selecting a report type, a pop-up window will appear where you can customize the time range for the data you want to see in your report. 

Make Sense of an Amazon Sales Tax Report for Purchases With Unloop

The Amazon sales tax report is a great way to help you stay compliant with relevant tax laws. You should also generate this report if you are responsible for collecting sales taxes, especially outside Amazon.

Are you still confused about sales taxes? Outsourcing tax support helps simplify running your ecommerce business.

Whatever ecommerce platform you use, adopting industry-specific tax and accounting methods is critical to achieving your business objectives. With the right accounting service, you can grasp these numbers and make more informed business decisions.

Unloop can be your partner as you grow your ecommerce business. Our team of experts can provide you with a wide range of services, from accounting to automating your sales tax collection and other important financial tasks. 

Book a call with us, and we'll help you get started.

Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.

You're probably familiar with sales tax. It's that pesky thing you have to pay on most purchases, depending on your location. Many online sellers have asked themselves, "Do I need to collect sales tax for selling online?"

The answer is overwhelming, but it's not complicated as long as you have a tax guide like this one. Inside, we'll break down the basics of sales tax for online sellers and help clear up any confusion. 

It's important for small business owners to be aware of their legal obligations. Fortunately, with a little knowledge about how tax law works, you can avoid many headaches by being compliant. We'll explain each part step by step so that by the time you finish this post, you'll be a bona fide sales tax expert. Let's get started!

What Does Internet Sales Tax Mean?

Also known as ecommerce sales tax, internet sales tax is the small percentage you collect when you make an income from selling your product online. You must accurately assess sales taxes and pay them to the proper state tax authorities.

In the US, most states require online businesses to collect sales tax. On top of this, you need to check the cities and countries you sell in and see if they have special taxing districts, AKA special assessment districts. 

Let's say your online business is currently located in Los Angeles, California. 

As of 2022, the city of Los Angeles, California, requires businesses to pay a 9.6% tax rate from their sales and revenue. The final computation of your tax rate is determined by the exact location of your business. 

What Is a Sales Tax Nexus? 

The exact location of your business determines the taxes you have to file. You're responsible for charging the correct sales tax and remitting the right amount of tax rate back to your respective state. But what does this fancy term "sales tax nexus" even mean?

It's a legal term of the state that means "to be on the hook." If you have a place of business, it means you have a physical presence that the state can tax you on. It could be a:

• Warehouse
• Storefront
• Office

The Ripple Effect of the US Supreme Court Ruling

Generally speaking, online businesses don't pay sales taxes if they don't have a nexus. But for many years, states have been arguing about not being able to collect sales taxes from online business owners simply because these marketplace sellers don't have enough sales within their located state to generate taxes.

But the burden shifted back to the seller since the US Supreme Court ruling over South Dakota v. Wayfair in June 2018. Sales tax nexus laws have changed on when and how to collect taxes. As a result, complying with tax prerequisites for online retailers, especially small to medium businesses, has gotten much messier. 

The ruling changed how online businesses collect and charge sales taxes. Many states have the power to charge sales taxes on online businesses even without a nexus. But as of now, the status of this new tax law hasn't been passed as a federal law, which is good news for small businesses in some states. 

Are You Required to Collect Taxes in Other State Locations? 

Yes, you still need to collect sales taxes in different states if you have:

• A physical presence: Whether it be an office, a store, or a warehouse far away from your home, you still need to comply with the sales tax laws of that state. 
• Personnel: Do you have accountants, contractors, salespeople, or service providers managing or working for your business in certain states? Then, you need to file sales taxes based on the location of your production as well. 
• Affiliates: Influencers who advertise your products or services also give you sales tax nexus in many states. 
• Inventory: Storing your products can cause sales tax nexus in most states, even if you don't have a facility or personnel. 
• Dropshippers: If you have a third party shipping your products to your consumers, there may also be sales tax nexus involved. 
• Selling at trade fairs and events: Some states may require you to collect sales taxes even if you sell there temporarily. 
• Economic nexus: If your business is booming and you're earning above the sales threshold in that state—as remote sellers, you need to collect sales taxes in a state if you reach a certain amount and number of sales in that state. 

What Products Have Tax?

Most tangible property is taxable. But some states make tax exemptions for certain products. 

Let's go back to California once more. If you are a marketplace seller that offers furniture, toys, and clothing, your products are subject to sales tax. In addition, some labor services and costs associated are even taxable if they are connected to producing new personal property. 

But there are sales tax exemptions in California, such as:

• Selling food and many groceries 
• Selling medicine prescribed by a doctor and certain medical devices
• Sales of items paid for with food stamps 
• Sales to the US government 

Important Reminders on How to Collect Taxes for Your Online Business

Once you have learned that your business is taxable, you must take steps to ensure tax compliance. This means filing the appropriate tax forms and making sure that your tax liability is up to date. By taking the time to file for tax compliance, you can help protect your business and avoid costly penalties.

Tax Permit Registration

Don't skip this crucial step when collecting sales tax. Unfortunately, most states consider it illegal and penalize businesses that collect sales tax without a tax permit. So instead, we suggest you contact the Department of Revenue of your state to learn more about registering your business for sales tax collection. 

Sales Tax Filing and Report

Like each state's calculation of sales tax nexus, the state assigns how frequently you will file your sales tax—either monthly, quarterly, or annually. When your sales tax due date comes, it is your job to state how much you've collected. 

Reporting your sales tax is easy if they want to see only the total of your sales tax collection. However, most states want to know how much you've collected in each county, city, state, and other special taxing districts in your nexus. 

Final Thoughts

The verdict is in, and, as expected, the Supreme Court's decision in South Dakota v. Wayfair has had a massive impact on online sales tax laws across the US. As a result, states are now scrambling to put new rules and regulations governing how and when sellers must collect sales tax based on their customers' physical location. 

Suppose you're an online seller doing business in more than one state. In that case, it's important to understand the implications of this ruling and take action to ensure you are compliant with all applicable sales tax laws. 
Contact financial experts from Unloop today for help in navigating these murky waters and staying ahead of the curve for internet sales tax compliance.

Dominating the FBA business goes beyond intuition—it demands data-driven insights, predictive analytics, and a strategic approach. Fortunately, FBA forecasting is not merely an option for sellers; it’s now necessary for business success. 

From inventory management to sales, harnessing the power of forecasting can accurately predict future demand to ensure you are well-prepared to meet customer expectations while maintaining healthy stock levels.

This article provides an in-depth look at the relevance of forecasting on Amazon and the strategies you can use to grow your FBA business. Knowing the dynamics will help you steer your business to sustainable growth.

Area #1: Inventory Management

Amazon FBA, or "Fulfillment by Amazon," has transformed how sellers conduct ecommerce operations. This powerful service taps into Amazon's extensive network of warehouses and logistics infrastructure, allowing sellers to scale their businesses without the burden of managing complex logistics.

One critical area where forecasting can take center stage is FBA inventory management. As you entrust your products to fulfillment centers, you must plan and strategize your inventory to meet customer demands while optimizing costs and resources.

Let’s know more about its inventory role:

1. Inventory Forecasting

Inventory forecasting uses sales history, market trends, and pricing information to anticipate the future demands for a company’s products. By analyzing past sales patterns and external market factors, you can determine how much inventory to maintain, when to restock, and how to strengthen the supply chain.

You can get a clear picture of your current inventory status through inventory forecasting software. Its informed predictions help you identify if your business can fulfill its long-term and short-term obligations to Amazon FBA.

2. Demand Forecasting

Unlike inventory forecasting, demand forecasting involves analyzing customer demand to envision future market needs. You can make strategic decisions about production, marketing, and resource allocation by assessing customer behavior.

With an accurate demand forecast, you can maintain the right inventory level, keep your supply chain running smoothly, and address any potential issues before they arise.

3. Stockout Prevention

Running out of stock can severely impact your FBA business, resulting in lost sales and disappointed customers. A well-optimized inventory management system, fueled by accurate forecasting insights, minimizes the risk of stockouts, helping you maintain a consistent supply of products. 

4. Over-Ordering Prevention

Sufficient inventory is vital, but over-ordering can lead to excess inventory and increased storage costs. This is where forecasting works. With this technique, you can review your past sales data, seasonal patterns, and other factors affecting your inventory planning. You can also avoid any surplus in the future.

Area #2: Sales

Sales are the lifeblood of any Amazon FBA business. Without consistent sales, the entire FBA model would be rendered ineffective. As a seller leveraging FBA service, your primary goal is to present products that deeply resonate with customers, spurring high conversion rates.

Sales forecasting is the key to building a thriving enterprise in the marketplace. But how does it contribute to your transformation?

1. Metrics and KPIs

A precise sales forecast can establish meaningful KPIs (Key Performance Indicators), track your progress, and measure the success of your strategies. These important metrics and KPIs may include:

2. Advertising and Social Media

Advertising and social media are business components that improve demand forecast accuracy. By running ad campaigns on search engines like Google, you can generate data on customer engagement and behavior, which can be integrated into demand forecasting models.

Social media platforms also have much information on customer sentiment, interests, and feedback. From there, you can fine-tune your product line and promotional tactics.

3. Competitor Analysis

Even in the world of Amazon FBA, competition remains fierce. Sellers must navigate through various challenges to stand out and succeed. These challenges include: optimizing pricing strategies, enhancing product listings, and boosting product rankings to secure visibility.

Adding competitor analysis into your forecasting process boosts your knowledge of competitors' successful tactics.  By benchmarking against industry peers, sellers can set realistic goals and determine where to outperform others, thus gaining a competitive advantage.

Area #3: Order Management

In order fulfillment, strong management is critical for maintaining a smooth and efficient supply chain. This process encompasses every step, from customer order to final delivery. It involves coordinating inventory levels, managing order fulfillment, and ensuring timely and accurate customer shipping. 

Effective order management relies on data-driven insights and proactive planning, which can be achieved through forecasting. Let’s find out how forecasting functions in order management.

1. Purchase Orders

A purchase order (PO) is a legal document that outlines the items or services a buyer intends to purchase from a supplier. In the context of FBA forecasting, purchase orders play a significant role in managing inventory replenishment. Creating and tracking POs allow you to maintain accurate order records and negotiate favorable procurement terms with suppliers.

You can effectively take advantage of forecasting management if you pay close attention to the following:

2. Order Intervals and MOQ

Determining optimal order intervals and minimum order quantities (MOQ) is important for efficient inventory management. The order interval is the period between two consecutive purchase orders, while the MOQ is the lowest quantity of a product that a supplier agrees to sell.

• Order Intervals can be calculated using various techniques such as sales trends, seasonality, and lead time. Accurate order intervals enable you to reduce stockouts and avoid overstocking.
• MOQ considerations depend on factors like supplier negotiation, competition in the market, and sales volume. 

Striking a balance between MOQ and order frequency can refine your purchasing costs and inventory carrying costs.

3. Service Levels

Service levels represent the percentage of orders that can be fulfilled upon customer request. High service levels signify substantial orders being fulfilled without delays or stockouts, leading to satisfied customers and positive experiences.

Monitoring service levels is an ongoing process, demanding continuous evaluation and adjustment. In this case, accurate forecasting is a reliable ally, alleviating stress and burden by furnishing invaluable insights into inventory management and order processing.

Area #4: Product Development

Product development in the Amazon FBA business focuses on introducing novel products or enhancing existing ones to cater to buyers’ preferences. Accurate forecasting equips sellers to make smarter decisions throughout the product development lifecycle.

Allow us to explore the workings of forecasting in this FBA area.

1. New Products

New products are essential for keeping your Amazon FBA store fresh and appealing to customers. But sometimes, it is prone to inherent uncertainties and risks. This is where forecasting becomes invaluable. 

Before launching a new product, you can conduct market research on customer demand, competition, and potential sales opportunities. Making educated projections about the new product's potential success is also attainable.

By studying the performance of similar products in the market, you can gauge customer preferences, expect sales trends, and align your brand to meet those expectations.

2. Vendor Relations

Vendor relations thrive when sellers maximize forecasting to its fullest potential. By incorporating forecasting into their operations, they can cultivate strong and transparent relationships with their vendors, modifying various aspects of collaboration.

Forecasting allows sellers to communicate their demand and production requirements to vendors, boosting transparency and aligning expectations. This situation facilitates smoother procurement processes, as vendors can plan and allocate resources to meet the projected demand.

Forecasting also aids in negotiating favorable terms with vendors. Armed with projections of future sales and order volumes, you can get an advantage in negotiating pricing, knowing minimum order quantities, and getting lead times—all of which are useful in your overall profitability.

Area #5: Financial Planning

Financial planning in Amazon entails projecting future revenues, expenses, and cash flow to sustain business operations, particularly with the fees associated with selling on the platform. 

Accurate forecasting is fundamental to effective financial planning, enabling strategic resource allocation, well-informed investment strategies, and a healthy financial position.

Delve into the intricate dynamics of forecasting within this specific area of Amazon FBA.

1. Pricing Strategies

The right pricing strategy can directly impact sales, customer perception, and overall business performance. Setting prices too high may lead to limited sales and potential loss of customers to competitors, while pricing products too low may result in reduced profit margins.

Accurate pricing, guided by market research, competitor analysis, and data-driven insights, allows FBA sellers to position their products competitively, attract customers, and optimize revenue. 

2. Cash Flow Management

As cash flow refers to the movement of funds in and out of business, managing it efficiently ensures that FBA sellers have the necessary liquidity to cover expenses, invest in growth opportunities, and fulfill financial obligations promptly.

By accurately forecasting cash inflows and outflows, sellers can make better financial decisions, maintain financial stability, and seize possibilities for expansion and innovation.

3. Expense Management

Expense management involves assessing and diminishing costs across various areas, including inventory sourcing, storage fees, advertising, packaging, shipping, and operational expenses. 

With forecasting, you know where to implement cost-saving measures, negotiate better terms with suppliers, and streamline operations.

Choose Unloop for Your FBA Forecasting Needs

Developing and refining your forecasting strategies means staying agile and responsive. A proactive approach to growth and anticipating market changes will be instrumental in cementing your brand's success in the competitive FBA world. Keep working at it with confidence and knowledge, and your business will have a higher chance of thriving.

If you are pressed for time or uncertain about handling data and numbers, fret not, for Unloop is here to lend a helping hand. We can help you project into the future and make quick, informed changes to manage your business outcomes. 
As your business evolves, so do your future sales with the help of our comprehensive forecasting service. Book a discovery call now!

Outsourcing tasks for different business areas can be beneficial, especially when you're not well-versed in doing such things. When it comes to finances, you can get a bookkeeper or an accountant to help you. But what’s the difference between bookkeeping and accounting in the first place?

You've come to the right place if you're considering hiring either of the two (or both). We'll list the different responsibilities of bookkeepers and accountants so you can hire the proper help for your growing business. 

What is the Key Difference Between Bookkeeping and Accounting? 

Since they both involve managing a company's financial position, many use the terms bookkeeping and accounting interchangeably. However, they are vastly different. 

What Is Bookkeeping?

Bookkeeping focuses on collecting, filing, and recording financial transactions. Bookkeepers focus on keeping things organized while accurately recording these business transactions. 

The discipline of bookkeeping follows this cycle when recording business transactions.

1. Charting: Charting helps bookkeepers establish a business’s recordkeeping system by identifying each business transaction’s labels.
2. Journaling Entries: After the bookkeeper charts the accounts, they can use them to record business transactions in a journal.
3. Ledger Recording: The ledger is another book bookkeepers maintain containing all the debit and credit transactions of a given account. They often record the amount on the ledger on a given period and calculate its net total (i.e., debit minus credit).
4. Preparing a Trial Balance: After getting the net totals of all the ledger accounts, the bookkeeper proceeds with a trial balance, ensuring every transaction amount is accurate and corresponds with one another before report generation.
5. Generating Financial Statements:- The bookkeeper can prepare an accurate financial statement once everything is balanced and set. The business owner or the accountant will use these reports for decision-making or tax purposes.
6. Closing Books: At the end of the business period (every 12 months), the bookkeeper closes the books and carries over the real account balances, the accounts in the balance sheet, and their corresponding amounts to the new business period.

There are two ways to do bookkeeping: single-entry and double-entry bookkeeping.

Single-Entry

In the simplest sense, bookkeeping for startups means jotting down expenses and evening them out at the end of the week with the sales. This type of bookkeeping is called single-entry bookkeeping, which tracks only how much money goes in and out of the company without diving into the specifics.

While acceptable for small business owners, single-entry bookkeeping can leave much room for error, especially in financial reports. Since it lacks data, single-entry bookkeeping cannot produce a balance sheet. It will also be difficult to do taxes since the IRS does not allow single-entry bookkeeping to be used as a record for tax returns.

Double-Entry

Compared to the previous type, double-entry bookkeeping is much more complicated. However, it can give you much more accurate financial reports. In double-entry bookkeeping, transactions are entered twice: once each for different accounting tools, debit and credit.

For example, if you make a loan, single-entry bookkeeping will label it as income. However, the interest attached to that loan will also become an expense. 

On the other hand, if you enter a loan in double-entry bookkeeping, the system will label it as a debit, which is a liability more than an asset.

Double-entry bookkeeping can provide business owners with much more accurate reports and, since it logs debit and credit, can also provide a company with a balance sheet.

What Is Accounting?

Accounting aims to evaluate financial information for a company or organization. It is about having an overall look at the business's financial data and interpreting that data to create sound decisions, such as acquiring business loans and expanding the business. 

Accountants are more focused on understanding and analyzing the provided financial data. They provide consultations based on said data and are tasked to give out advice regarding financial decisions in business operations.

There are several subdisciplines under accounting, some of them are:

• Financial: This is the process of interpreting and analyzing financial statements made by the bookkeeper. It concerns profit maximization, general management policies, and increasing shareholder value.
• Cost: This branch deals with production and manufacturing. It takes a thorough approach to costing raw materials and production processes to ensure they are priced appropriately, which is important when pricing the finished product.
• Managerial: Managerial accounting concerns itself with auditing financial reports and governing the system that produces them. Business owners and managers use the information to help with day-to-day business operations.
• Tax: This focuses on tax rules and regulations. This helps tax accounting practitioners to comply but, more importantly, allows them to maneuver the taxation system and make efficient tax decisions for the business's benefit.

Accounting can be performed in two ways, depending on the company's financial situation.

Cash-Basis

Cash-basis accounting is a type of accounting that bases the business's current financial position on its immediate transactions. In cash-basis accounting, accountants record how much money goes directly into a business and how much they spend on expenses and figure out their net profit.

When accounting on a cash basis, accountants don't include delayed payments as part of the company's cash flow, making this method more limited than accrual accounting.

Accrual

On the other hand, accrual accounting is a type of accounting that accounts for all assets and liabilities of a company. In this type of accounting, sales that have not been fulfilled yet are also included in the cash flow while also keeping track of expenses that have not yet been fulfilled. 

With accrual accounting, business owners are given the whole picture of their company's financial situation. And with fulfilled and unfulfilled payments in their company's financial data, they can make long-term plans for their financial transactions and better understand their company's overall financial health.

Here are a few examples of accruals.

How do Bookkeepers and Accountants Differ In Terms of Tasks?

Hiring a trained professional to help you manage your business means allocating resources to pay them. But, of course, you want your hard-earned money to be worthy of the service you are getting.

So let's look at the different responsibilities of accountants and bookkeepers to help you further differentiate bookkeeping and accounting tasks.

Key Responsibilities of Bookkeepers 

Although they don’t necessarily need an accounting degree to perform the job, most people prefer hiring bookkeepers who have finished an associate’s or bachelor’s degree related to accounting or business.

Bookkeepers are trained and do not need state-mandated exams and certifications to do their job. On average, a bookkeeper's rate starts at $30 per hour. 

Managing Daily Cash Flow 

Whether cash flow comes in plenty or slows down, tracking everything that comes in and out of your business is a way of telling if your business is doing well. Part of a bookkeeper's job is recording weekly business sales and expense transactions. 

Because of modern technology, automated bookkeeping software is now available, making it easier for bookkeepers to record your data. Moreover, bookkeeping software instantly summarizes your transactions whether you want monthly, quarterly, or annual data. 

Handling Accounts Payable and Receivables

It's common for small businesses to have suppliers instead of producing their own goods. Of course, you need to pay the suppliers for the goods they manufacture for you. You can work with several suppliers if your company sells various goods. 

The bookkeeper must make payments to your suppliers. They can also make payments on behalf of your business for other necessary expenses. 

In addition, as they make payments for your business, they are in charge of the collection. They send invoices to your clients to ensure all payments are made on time. They also record if payments and receivables come in late to ensure that your sheets remain balanced. 

Processing Payroll

A bookkeeper's service may vary, and it can include processing payroll. For small businesses, bookkeepers can perform some duties of the HR department. For example, they can assist in processing paychecks and ensure employees get their pay accurately and on time.

Reconciling Accounts

Bookkeepers also reconcile accounts to maintain a company's financial integrity. They are well-equipped in identifying and finding errors in the books they maintain. Reconciling your accounts can fish out any inconsistencies in your company's accounting, which could single out any fraud or theft attempts within your business.

Preparing Financial Statements

Businesses produce several financial statements. The data on these statements can tell if your business is stable or on the verge of failing. These statements are then given to licensed accountants to review and analyze. 

Balance sheets, cash flow statements, income statements, and statements of equity are a few crucial financial documents that bookkeepers can produce.

Key Responsibilities of Accountants 

A certified public accountant goes through a rigorous accounting degree and must pass state-mandated licensure examinations before offering services. A certified accountant's average rate is between $50–$100. It can go higher depending on their work experience.

Ensuring Financial Record Data Is Valid 

The accountant's role is to ensure all data in the business's financial records are valid and accurate. Accountants are responsible for tracking any statement inconsistencies and pinpointing any problems. They will also be in charge of consulting with a bookkeeper when they see these inconsistencies. 

Once everything is verified, accountants will be the ones to answer if auditors check on your business. They also present these statements to stakeholders and potential investors to help grow your business.

Ensuring Your Business Complies With Tax Laws 

If bookkeepers record the cash flow in a business, the accountant makes sure you pay up correctly—especially taxes. Taxation is an important part of business, and you must comply with tax laws to run your business legally and smoothly. 

Accountants file all tax returns for your business. Tax filing is done quarterly or annually, depending on the rule of your country's tax collection agency. Accountants ensure you file and declare taxes on time so you won't have to pay fines and other unnecessary expenses. 

Forecasting and Risk Assessment 

An accountant can examine your business's financial records to forecast your business's future. Besides records, there are other ways accountants can predict the direction of your business. 

For example, the market research method uses how many people are potential buyers when a product is launched. This information can help you significantly enhance your sales.

Other forecasting methods may include factors like GDP, economic factors, trending, and data models, which can be used for long-term forecasts. Accountants can also help you plan your business's next step. Risk assessment lets you see if your actions will benefit your business growth. 

Many small business owners tend to go big and be reckless with their decisions, causing failure. Accountants will be able to strategize with you along the way so your business resources won't go to waste. Their financial advice will help you allocate your resources to the right department.

Budgeting and Cost Accounting 

Small businesses strive to make their processes more efficient to lessen their expenses. Budgeting within the business process is also in the job description of an accountant. They can pinpoint your business areas with unnecessary expenses that they think you can lessen. 

Accountants can help you save money and allocate them to the other areas of your business you can improve. 

Best Accounting and Bookkeeping Software for Accountants

As mentioned, modern technology has made accounting and bookkeeping easier. If you aren’t fond of letting other people handle the work, looking for affordable accounting and bookkeeping software with easy-to-use features is ideal. 

These tools may vary according to their uses and features. Choosing the one most suited to your business is crucial.

Intuit QuickBooks Online

This software is best for small businesses because it is affordable and, at the same time, effective. One of the best things about QuickBooks is its tools for different accounting tasks, such as creating professional invoices, taking payments, keeping tabs on expenses, and monitoring your cash flow.

Besides these, what makes QuickBooks attractive is its scalability. You can adjust your plan according to your business's size and needs. It is recommended for small businesses that wish to expand later on.

Oracle NetSuite Accounting Software

Another great choice of accounting software for small business owners is NetSuite because of its variety of features, including enterprise resource planning tools. Its automation makes it simple for businesses to collect and send invoices and get a clear picture of how they are doing financially.

FreshBooks Accounting Software

FreshBooks is one of the best choices for those who still can't afford expensive plans. Despite its affordable price, this software is an all-in-one accounting solution that can provide essential bookkeeping services for your business.

FreshBooks also boasts easy-to-use features, which benefit those who don't have a background in accounting. FreshBooks is recommended for freelancers and new business owners.

Zoho Books Accounting Software

This simple accounting software is best for microbusinesses with its basic features and affordability, allowing businesses to grow without spending big on accounting software programs. Its basic features include tax services and generating financial reports.

Conclusion 

The difference between accounting and bookkeeping may be hard to spot as they both focus on the financial aspect of the business. To simplify, bookkeepers keep all financial transactions in an organized record. In comparison, accountants are the ones to analyze and interpret the data. 

So which one is better for a small business? As you start, bookkeeping will be easier for you to handle. The accounting process can be a little trickier but still manageable. However, hiring both may be a good decision as your business grows and more cash flows into your company. For trusted bookkeepers and professional partnered accountants, book a call with Unloop at +1 877-421-7270 and talk to our professionals. We offer many different financial services to fit a small business's budget.

Your financial statements are one way to know how well your business is doing. However, some things are just inevitable, such as errors. Whether you make financial statements manually or generate them through accounting software, there's always a window for mistakes. That's why preparing financial statements should be handled with extra care.

A small mistake in financial statements can have enormous consequences. However, understanding how things go wrong can help business owners fix and prevent these errors. Let's look into the common mistakes with business reports, so you know what to do when your numbers don't match.

Questions You Need To Ask

Before we start discussing the pitfalls of financial statements, it is also crucial that you know when a problem occurs. Here are some questions you need to ask to help you determine inconsistencies and errors in your business statements.

• Does your accounting planning system generate timely and accurate financial reports?
• Do all financial reports come in on a daily, weekly, and monthly basis? 
• Are all business reports distributed to the appropriate personnel on time?
• Do the people that receive the financial statements know how to read them and use the information in the report?
• Do people in your business take the time to read and analyze these reports and utilize the insights to make better business decisions?

If you answered no to one or more of these questions, there might be something wrong in the process or the reports themselves, and you should start addressing them. 

Common Mistakes in Financial Reporting

Sometimes, no matter how carefully small business owners prepare their reports, mistakes still seep in. Here are mistakes you should look for in different financial statements.

Data Entry Errors

Data entry is the most common and frequent error that could happen in financial statements. Among the most typical mistakes made when entering data are:

• Declaring input in the wrong account or table. (e.g., putting sales in the expense table).
• Forgetting or adding a number or a decimal place.
• Deleting or duplicating an entry.

It's always best to have two copies of your important financial statements to compare them side by side. Furthermore, you can assign personnel to double-check the entries to guarantee that there are no inconsistencies.

Lacking Comparative Data

Some businesses choose to produce single-columned reports, which are short in comparative data. Including the company's current assets and previous vital data points will give a better insight into the business's financial position.

Financial reports such as income statements and expense reports should contain comparative data. It will help you see if your business generated more sales than in other months so you can adjust your strategies. It goes the same for your expenses. It always helps to compare your current and previous expenses to see if you're going overboard to look for ways to save your resources.

Error of Commission

An error of commission happens when you mishandle data and enter it in the wrong place. In this error, you still enter the correct amount. The inconsistency happens when you put it in the wrong category. For example, you make a sale of $100 from your products, and you accidentally put this in your expense column.

You will see a decrease in your inventory but not an increase in your sales which can confuse you when the report comes out. It will also make your expense report higher than usual. Small amounts may seem insignificant, but they may turn your finances into chaos when it's consistently happening.

Failure To Inspect Business Financial Statements Closely

Making financial statements will be pointless if no one takes the time to read and study them. Aside from understanding what the numbers mean for your financial performance, inspecting them to look for suspected errors is also crucial.

To help spot errors in profit and loss statements, balance sheets, and other important business reports, every person that receives the reports should:

• Possess the knowledge necessary how to make a business financial statement and comprehend the primary financial accounts of a company.
• Dedicate time to read the statements on a schedule.
• Identify discrepancies that deviate from your usual outcomes.
• Immediately find a solution for the discrepancies and address them with people of authority.

If the administration can’t find solutions to the errors in the report, it's best to hire someone who can help you sort out and correct the errors in your financial statements.

Neglecting To Change Procedures To Prevent Errors

Errors in your financial statements will be ever-present if you don't look for the root cause of the errors. Revising some of your accounting procedures can help decrease and eliminate these errors.

For example, most data entry errors, such as omission or mishandling, stems from doing them manually. If you have a small business, manually recording income and expenses or making cash flow statements are a piece of cake. But regular and accurate recording will prove much more challenging as your business grows.

In its place, you can invest in accounting software to eliminate errors in your data entry. Revisit all your accounting procedures and make adjustments to ensure recurring errors in your reports can be eliminated.

Forgetting To Analyze Financial Ratios

Financial ratios are essential to assess your business activity. It will help you pinpoint potential problems before it does considerable damage to your business. For example, suppose your account receivables grow from 25 days to 30 and 35 days over a specific period. In that case, it can signify that some of your customers still have pending cash payments or you must catch up on collection responsibilities.

Calculating financial ratios should be done with the three main financial statements— income statements, balance sheets, and cash flow statements. By doing this, you can spot discrepancies and address potential problems.

How Mistakes Affect Small Businesses

Some mistakes are small and easy to remedy, but some are harder to spot and significantly damage businesses. Here are some consequences that come with erroneous reporting.

• Incorrect Income Statements: Wrong data in income statements can distort your company's financial position. Under-computing your profit margins can give you the impression your business is performing poorly, while over-computing can mislead you that you are generating your desired profit margin.
• Incorrect Expense Tracking: Failing to include all your business expenses will mean you miss things under deductible expenses, which will lead to overpaying your taxes.
• Indication of Fraud: When inconsistencies happen after all your efforts, one thing is sure: it is caused by fraud. Fraud often happens in small businesses since it's not easily detected. However, if it persists for a long time, it can cause the downfall of a business.

Get Accurate Financial Statements for Small Businesses

Proper bookkeeping is critical to creating accurate financial statements. Fortunately, there is an expert ecommerce accounting service that can help small businesses like yours. Unloop offers all-around accounting services for ecommerce businesses.

For your financial statement needs, Unloop's bookkeeping services have got you covered. Our bookkeeping services include the following:

• Preparing three primary financial statements: income statements, balance sheets,, and cash flow statements, on a monthly basis.
• Accrual accounting method for key financial statements.
• A subscription to accounting software such as QuickBooks and Xero.
• Filing your taxes and ensuring you pay taxes correctly and on time.

Financial statements say a lot about the overall financial health of your business. Ensuring they are accurate and complete with all essential data points is a top priority. We hope this list of common mistakes helps you be more careful of your errors. 

In addition, if you need professional accounting help, Unloop offers other services such as accounts payables, forecasting, payroll, and taxation. Book a call with us today!

Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.

Amazon, the largest global platform for product sales, offers unparalleled opportunities for ecommerce businesses. But taxes are also an ever-present reality that can lessen their hard-earned income. Can you really drop the drop shipping sales tax on Amazon? Let’s find out.

As an Amazon seller, you have the painstaking responsibility to collect sales tax for every purchase. But there is a silver lining in the form of dropshipping. This business model is one of the few ventures eligible for the coveted Amazon Tax Exemption Program (ATEP).

But how do you achieve tax-exempt status on Amazon via dropshipping?

In the upcoming sections, we will delve into the specifics, equipping you with the knowledge to implement this tax-saving hack.

We will cover everything from the eligibility criteria to the intricacies of sales tax compliance in dropshipping. Get ready to discover practical tips, actionable steps, and expert guidance that will enable you to position yourself for financial success on Amazon.

Understanding Sales Tax in Dropshipping

Embarking on your drop shipping journey means understanding the key parties involved: 

• you, 
• your valuable customers, 
• and the third-party company

Why is that?

The rules and regulations governing Amazon sales tax vary based on the locations of the buyer, seller, and third-party supplier engaged in each transaction. Discerning the precise methods for collecting and remitting sales tax is paramount to avoid legal consequences.

Here are a few important things to consider if you use the dropshipping model for your business:

Sales Tax Nexus

A sales tax nexus refers to the connection between a seller and a state, which requires you to collect and remit sales tax from customers in that state. Factors determining a sales tax nexus include having a physical presence, employees, or storing inventory in a state.

Nexus plays a crucial role in the context of dropshipping. If you have a nexus in a state where the sale occurs, collecting sales tax is paramount, even if you’re working with a third-party dropshipper. On the other hand, you’re exempted from collecting sales tax if you don’t have nexus. 

Retailer-Dropshipper Relationship

In business, a foundational principle holds true: the end customer is responsible for paying the consumption tax, as they directly benefit from the final product. This tax specifically targets consumption, encompassing personal and expenditure purchases.

But when it comes to dropshipping, the sales tax process can get slightly confusing. You might wonder, “Am I obliged to pay tax on the orders I place with my suppliers? Is it the suppliers’ responsibility to collect tax?”

Here’s the good news: You’re not required to pay sales tax on purchases intended for resale. The key lies in a single requirement, which we will delve into in the next section.

Sales Tax Permit: The Answer to Tax-Exemption

If you want to resell products online, you will need a sales tax permit. In this case, it’s not only for collecting and remitting sales tax; this document also helps you apply for the Amazon Business’s Tax Exemption Program. 

In most states, registering for a sales tax permit is relatively simple and can be completed online. Let’s help you get started. 

#1. Compile All Business-Identifying Information

Having your ducks in a row from the beginning is important as a business owner. This will ensure that you can always correctly identify yourself and your business when dealing with government agencies or financial institutions.

Double-check if you have the following proper documentation for your online business.

• EIN: The Employer Identification Number is a unique nine-digit number the IRS assigns for tax collection. Other names it goes by are FEIN (Federal Employer Identification Number or FIN (Federal Identification Number). 

• Business Bank Accounts: A dedicated bank account for your business not only aids in streamlining financial operations but also serves as concrete evidence of your online business’s legitimacy.

• Trademark Registration: Trademark registration can help deter others from using your mark and give you the exclusive right to use the mark in commerce. It also acts as evidence of ownership and helps protect your investment in your brand. 

#2. Apply to the State Department of Revenue Website

The State Department of Revenue is a vital government institution entrusted with tax collection and enforcement of tax laws. Each state operates its own Department of Revenue, overseeing taxation matters within its jurisdiction. 

Here are things to remember about registering your online business:

Await confirmation and be patient about the issuance of your sales tax permit. Following these steps establishes your commitment to operating within legal frameworks.

How to Get Tax Exempt on Amazon in Minutes 

Now that you have your sales tax permit, you're one step closer to getting your tax exemption status approved.

Next is heading over to your Amazon account and applying the following steps.

#1. Select the States You Want to Avoid Sales Tax Exemption In

Online sellers under US law are required to collect sales tax in states with a physical presence or nexus. Amazon has used this loophole to its advantage, systematically avoiding collecting sales tax in most states.

Dropshippers can get Amazon tax exemption from some states, so be sure to check them before applying.

Source: Amazon

You will notice that some places are not included in Amazon business tax-exempt. It's because these states do not levy sales taxes.

#2. Fill Up Your Business Info 

Once you have determined the states in which you are seeking Amazon tax exemption, input the requested business information. This may include the business name and the type of products you're selling. 

This step entails submitting essential documents such as your sales tax permit and other important tax-exempt records.

#3. Get an Amazon Sales Tax Exemption Certificate

Sometimes, having a sales tax permit means having a resale certificate. But if you’re not confident about your eligibility, you must focus on obtaining exemption certificates. 

• The rules for resale certificates vary by state. Some only accept multi-state tax certificates, which provide a comprehensive sales tax exemption certificate recognized by 38 states. 

• There’s also Streamlined Sales and Use Tax Agreement (SSUTA), where you can benefit from a single exemption certificate if your business is registered under this program.

When you purchase from the supplier, you must provide them with your complete exemption certificate. Then, the supplier will not charge you sales tax.

Don’t forget to double-check everything after you sign up for a resale certificate. Once you click “Activate Certificates, ” your Amazon tax-exempt status will take effect in 15 minutes. Meanwhile, Amazon Business will upload the Amazon Tax Exemption Certificates within 24 hours. 

Optimize Your Sales Tax Obligations With Unloop

Collecting, remitting, or paying sales tax is the bare minimum requirement in Amazon, but you also need to stay compliant with rules and regulations. Fortunately, sellers can now apply for sales tax-exempt status.
Unloop can help you through the process and ensure everything is filed correctly so you can continue earning profits without penalty. Are you ready to get tax-free income? Book a call today, and let’s see what Unloop can do for you!

Business accounting involves evaluating the past performance of your business and determining how well it is thriving. Peeking into your business's future performance is equally essential. Financial forecasting methods come into play here, enabling you to anticipate challenges and plan accordingly, ensuring a smooth business operation.

Unfortunately, many small business owners don't pay much attention to their organization’s future performance. But forecasting is a key factor that makes a venture successful. So let Unloop help you look closely at business forecasting, its importance for small businesses, and how to do accurate forecasts using different methods.

What is Business Forecasting?

Forecasting is looking into your business's historical and present financial data and market trends to predict its future financial performance. Forecasting can predict sales and potential expenses for a specific period. Due to the financial aspect, many business owners confuse forecasting with budgeting. 

They go hand in hand to help your business grow, but they are very different. A forecast predicts your company's future revenues, while budget forecasting involves allocating money to different business units to help you reach your revenue goals.

Why is Financial Forecasting Important?

Forecasting is more about business financial planning. There are several reasons forecasting is essential to a business. 

• First, accurate financial forecasts help you make informed cash flow, inventory, and financing decisions. 
• Forecasting also gives you an accurate picture of future income and helps you identify problems early on.
• Lastly, accurate sales forecasting provides insights into the market conditions, so you can go head-to-head and stay on top of your competitors.

Forecasting is an ongoing exercise. Adapt your assumptions as your business evolves.

Financial Forecasting Methods for Every Business

Many factors can affect your business, some of which you cannot control. However, financial modeling allows you to see potential scenarios and be more prepared when they happen. There are two types of forecasting methods: qualitative and quantitative methods.

We go over some of the most popular types of financial forecasting techniques in each area so you can better comprehend them.

Source: https://www.pexels.com/

Qualitative Forecasting Methods

Qualitative forecasting bases its predictions on experts' and customers' responses rather than using historical data. This method is valuable for new single or multi-channel ecommerce businesses and traditional businesses with no operational data, to begin with.

Here are some examples of qualitative methods.

Expert's Opinion

An expert's opinion involves asking an individual or group of experts about the subject matter, and they provide predictions according to their knowledge. An expert should offer opinions without bias to make the most accurate prediction possible. From there, business executives can evaluate and decide if they will push through with the suggested actions.

Business owners may bring more than one expert to collaborate on their predictions. But, of course, it is up to the administrators to decide which opinion to follow. They can rely solely on experts for future planning or try other methods and consider other factors that may affect the business.

Market Research

Market research is commonly used to determine the market needs of a certain product or service. The entire addressable market and the company's current clients are used in this strategy to collect data. Market research uses customer surveys, metrics analyses for current campaigns, testing, and research on your competitors' marketing strategies.

Market research needs large data as much as possible to eliminate human bias. This method requires much time, effort, and resources to deploy. However, you'll get the most accurate financial forecast if done correctly.

Delphi Method

The Delphi method is similar to experts' opinions, except it is more systematic and structured. In this method, you will still need experts to gain insight. But instead of giving them the freedom to make predictions based on their knowledge, they must answer several questionnaires until the business comes up with a forecasting model.

Why Do You Need Qualitative Forecasting?

Qualitative forecasting helps executives make informed business decisions like determining how much of their inventory to keep, hiring more people for their company, or adjusting their sales operations. Qualitative forecasting methods are also used to develop projects and marketing campaigns highlighting the business's products and services.

All businesses can perform qualitative forecasting, but some industries will greatly benefit from qualitative forecasting.

• Healthcare: Healthcare can use this method to determine trends in public health so they can prepare their services for the future.
• Education: Schools and colleges use this method to predict the number of enrollees in the coming school year.
• Sales: It helps companies make decisions like production levels and inventory prioritization to get more sales.
• Construction: Qualitative forecasting helps construction and manufacturing determine the approximate number of resources they need for their upcoming projects.
• Agriculture: Forecasting can help study sales of crops over the season so farmers can plant the produce most in demand by customers.
• Pharmaceutical: This helps pharmaceutical companies see which medications are more popular with users and increase production accordingly.

Source: https://www.pexels.com/

Quantitative Forecasting Methods

Quantitative financial forecasting is a data-driven forecasting method that businesses use to make accurate predictions for big decisions. This method uses historical financial forecasting data to analyze patterns to determine what the business performance will be like in the future.

Quantitative forecasting results are affected by past data, relevant variables, and time parameters. You can do this financial forecasting for budget, sales, or projected expenses for a future time period. Here are some examples of key financial forecasting methods using the quantitative approach.

Straight-Line Forecasting Method

The simplest quantitative forecast you can use is the straight-line method. This method only needs an approximate projected growth rate of your business, usually based on your past performance.

The straight-line method predicts your business's future by calculating your previous and projected performance. Here’s an example:

Naive Method

The naive method is the best financial forecasting method if you want calculations to be as simple as possible. This method suggests that your business performance will be the same as in the past. So if your business made $500,000 in sales last year, your business would generate the same amount this year.

This prediction does not consider dependent and independent variables, seasonal trends, or other factors that could affect your business. It can easily change when something major happens within a specific period.

Seasonal Index

The seasonal index method analyzes patterns in data points by separating months of the year into seasons. In most cases, seasons are divided into four quarters:

Q1: January, February, and March

Q2: April, May, and June

Q3: July, August, and September

Q4: October, November, and December

Experts calculate past seasonal index scores to determine how your business will perform in the future. 

Once you get the projected seasonal index scores, you can create a forecast for your business performance.

Revenue Run Rate Method

This method is used to forecast the revenue of a business in a specific period. Revenue run rates are calculated based on previous data and assuming your sales rate will continue at a certain pattern given a specific period.

For example, your business made $50,000 in the first quarter of the year. Using the revenue run rate method, you will assume to generate the same amount for every quarter. Hence, your total revenue for a year will be $200,000.

Importance of Quantitative Methods

Gathering data and creating inferences using quantitative methods help you draw more accurate predictions. More than accuracy, using the quantitative method provides the following:

• Predictability: When businesses have access to their past data, it is easier to spot trends and patterns within the business. This makes predicting the performance easier and more accurate than other methods.
• Objectivity: Using numbers and data means your results will be free from bias. Opinions gathered from experts are still beneficial, but they can be twisted to achieve your desired results. With data, it's more realistic and accurate.
• Transparency: As they say, numbers don't lie. Data reflects the exact state your business is in. This data transparency will help business owners make better business decisions.

Other Forecasting Methods

Small businesses have various financial forecasting methods to choose from to predict their future financial performance. While budget forecasting aims to estimate future income and expenses, other popular methods include multiple linear regression, moving average forecasting methods, and simple linear regression.

Simple Linear Regression

Simple linear regression is a forecasting method for analyzing independent and dependent variables. It's a simple way to project company performance trends and inform business decisions in the near or far future.

Multiple Linear Regression

Multiple linear regression is a more complex version of the simple linear regression. It uses one dependent variable against two or more dependent or independent variables. 

Moving Average Forecasting Method

The moving average forecasting method is a simple technique that involves averaging data points from a specified period. This method is often used to forecast short-term trends in financial data, such as sales or revenue.

Financial Forecasting Tools

Financial forecasting is a crucial aspect of any business, several tools are available to help with the process. In this section, we will discuss three primary financial forecasting tools: Excel, financial forecasting software, and the role of executives in financial forecasting.

Excel

Excel is a widely used tool for financial forecasting due to its flexibility and versatility. It allows users to do financial modeling, simple to complex formulas, and churn out forecasts. Excel is also flexible and allows users to tailor their forecasting graphs models based on their business needs.

One of the best things about using Excel for financial forecasting is its ease of use. There's little to no training involved, especially for most finance professionals, and it's widely available and affordable, making it a cost-effective solution for businesses of all sizes.

Financial Forecasting Software

In recent years, financial forecasting software has become increasingly popular. These tools are designed to streamline the forecasting process without sacrificing accuracy. Many financial forecasting software solutions offer advanced features such as real-time data integration, scenario modeling, and predictive analytics.

One of the key benefits of using financial forecasting software is its ability to automate many of the manual tasks associated with financial forecasting. This can save businesses resources, giving them more space to focus on the crucial aspects of their business.

Be Future Ready With Unloop

There is no doubt that business forecasting methods help administrators and stakeholders make better financial decisions. Whether you choose a qualitative or quantitative method, taking a peek into your future ensures that you will be ready to take on your business's future.

If you're serious about making business predictions, Unloop offers forecasting for businesses. Our service gives you a tailor-made forecasting model to drive your business to success. Get access to top-tier features, from recurring projections to insightful commentary. So what are you waiting for? Book a call with us today and learn more about our forecasting services.

As an aspiring entrepreneur, launching a business is often one of the biggest decisions. As exciting as it can be to embark on this journey, it also requires careful consideration and planning. If you are looking for success, financial planning and forecasting should be part of your startup strategy. Taking control of your finances from the beginning is essential for the health and growth of any business venture. It’s what separates successful companies from those that fail in their early years.

This blog post discusses why efficient money management through financial planning and forecasting is the key to helping your startup business succeed. Keep reading!

Financial Forecasting: A Look Into Future Finances

As the name suggests, financial forecasting predicts how your finances will look in a given time period. Forecasting is usually made annually and based on historical data for objectivity and accuracy. 

Note that forecasts aren’t 100% correct, and they are always subject to change, especially if there are new variables that pop up during the fiscal year. Nevertheless, it pays to invest in forecasting, especially if you are a startup. Here are some benefits of financial projections.

Objectively See Your Business’s Financial Future

No matter how limited the historical information is for new businesses, it helps if you still base your financial forecast on any of the past data you’ve gathered. This practice ensures that you have bias-free, objective, and accurate forecasting of future income, expenses, savings, profits, and trends.

Just note that there is a higher chance for beginning businesses to have forecast changes, as owners are testing the waters. Nevertheless, the forecast is still a good guide in the decision-making process.

Anticipate Your Income

It’s exciting to know how much you’ll be earning in the next year! Knowing these details brings a lot of benefits like the following:

1. You can prepare the supplies you need for peak months. This knowledge ensures you won’t run out of stock and that you can keep the sales coming.
2. The sales forecast will serve as your beginning sales benchmark—data you will be challenged to maintain or beat.
3. You will also know how much income tax you’ll need to pay, so you’ll have a chance to lower it.

Foresee Your Expenses

With your knowledge about your income comes the visibility of your future expenses. If you spend the same amount as you spent from the period you derived your data from, you are likely to have the same income. 

If you already have a large income, this is good news. All you need to do is to maintain the best practices and keep expenses to a minimum to maintain your high income. However, if you want to raise your revenue, you’ll get the chance to take a closer look at the areas where you can minimize the costs. 

Know How Much You’ll Save

Have you successfully saved in the previous year, or was it a challenge? As a startup business, it’s a bit of a struggle to begin saving, but you can still make it a goal and achieve it for the coming year. To successfully do this, financial forecasting will be of great help. 

When you know your income and expenses in advance, you’ll know your net income. Net income is calculated by deducting the total expenses from your total income. Then, you can plan on how much of this net income will go to your savings.

Predict Roadblocks

Months and quarters with low income, high expenses, and the inability to hit revenue goals can happen. Some of the expenses which can turn into roadblocks when left unmanaged are the following:

• Bank fees and interests
• Rent for office space and equipment
• Utilities
• Marketing
• Payroll
• Employee incentives and benefits
• Taxes
• Outsourced assistance
• Charity contributions
• Advertising and marketing
• Debts and interest fees

Financial challenges will be reflected in numerical form if you do financial forecasting. You can pinpoint specifically what the culprit is and can plan how to manage it better moving forward.

Prepare for Investor Presentation

Financial forecasts are beneficial for your knowledge and a helpful tool for you to gain more investors. As a startup business, having individuals willing to invest in your business keeps you from having large loans. Interest fees can hurt your business more than you know. Your investors will also likely be well-versed in the ecommerce industry and the products you sell. You can benefit from this expertise.

If you see your business working hand-in-hand with investors, a financial forecast can help gain their trust. This report lets them know if your company is worth investing in.

Planning: A Financial Forecast Complement

Financial planning is essential to all businesses, especially for startups like yours. The plan serves as a guide, so all your financial decisions are not made blindly. A forecast and a financial plan are always intertwined. The latter will be the means for you to bring the forecast to life or improve the outcome of that report. Through a well-thought-out financial plan, you can reap all these benefits.

Gives You a Clear Game Plan

Financial planning allows you to set clear future goals and ways to achieve them. Through it, you can create step-by-step annual plans on how to maintain a profitable company, maintain or increase income, save, set financial plans for profit, and see when you can expand your growing business. 

You can practice strategic decision making because you have visibility on all your assets and an idea of the possible costs. Hence, your actions will be directed towards spending less and earning more.

Drives You To Reach Profit Goals

Your income trend in the forecast will remain in numbers unless you work for it. If you continue the techniques of your current operation, you are likely to achieve the same earnings as the previous years you got your data from. However, if you are ready to step up, you at least have a base point through the forecast. You can be as creative as possible with the plans you suggest to increase your business income and revenue, or attain the highest profit possible.

Controls Expenses

Looking at your expenses closely is the key to ensuring that you make the highest income. The lower your expenses, the higher your income will be. As a startup business, here are some helpful tips you can follow:

• Pick the most cost-efficient supplies so new supplier partnerships last long. 
• Choose technology, applications, and software that can optimize your work processes through machine learning and allow you to save on payroll in the long run. 
• Review your expenses from the previous year, and check which expenditures you can still lower and control to save more.

Helps You Proactively Overcome Roadblocks

Challenges are a constant in running a business, especially when you are just starting up. For instance, you will see which months sales become stagnant. In this case, you can heighten your marketing and advertising beforehand to avoid it from happening. You will see how much taxes you are to incur in certain periods, so you can control travel expenses, utilize retirement and health insurance benefits, check qualified deductions, and deduct charity contributions. Many more roadblocks can be proactively addressed or kept at bay with a forecast and proper strategic planning. 

Show Confidence and Forward Thinking to Investors

Having investors for a startup business is a great help in ensuring you have enough capital to launch and keep your business running. Showing your financial forecast is putting your best foot forward, but telling them about your financial plan shows your confidence. Your plan shows that the financial data will not just stay in the books but will come to life. As a result, investors will be more encouraged to invest their money in helping your business grow.

Get Assistance From Unloop

Preparing a financial forecast will help any new business succeed in the long run. It's essential to get valuable insights on how much income you'll bring in and what your expenses will be, and can even predict any roadblocks that could come up. A financial forecast is also key when pitching your business to investors—it shows that you're confident and have a clear plan for the future. 

If you need help in getting started, our team at Unloop can assist you with forecasting and planning so that you can set your business up for success. Let us help you work on the limitations of financial planning and forecasting and make the most of these tools. Contact us now, we’d love to assist you!

It is impossible to determine your business's annual revenue to the exact dollar. However, high-quality revenue forecasting is necessary for every business. Forecasting allows your business to respond to challenges and prevent significant losses from happening.

Revenue forecasting is a difficult task, and if you are not well-versed in how to forecast revenue, many challenges will hinder you from creating an accurate revenue forecast for your business. Understanding where things could go wrong will help you improve your forecasting results and overcome potential difficulties.

5 Major Challenges To Forecast Revenue

A clear picture of the average revenue helps businesses make strategies to cater towards their growth. However, many factors affect the success of the forecasting process. Here are the biggest challenges in revenue forecasting and how to solve them.

Inadequate and Incorrect Data Points

The foundation of revenue forecasts is data points. Inadequate or worse, incorrect data basically makes your revenue projections useless. If something is inconsistent about your forecasted revenue, it's always best to go back to the data you gathered.

Obviously, improving your data gathering is the solution to this challenge. But how do you do it? Investing in forecasting software is the best way to eliminate the dangers of human error when gathering data for forecasts. If possible, you can assign a dedicated team to make sure all the data you have are valid.

Forecasting Period Range

You can project how much revenue you will have based on a specific period. For some businesses, annual forecasting is the most common way to see future revenue. However, you can make revenue predictions for five or even ten years.

The challenge starts with forecasting range. The shorter the time period, the more accurate the forecast you can get. Longer ones are more challenging since several unforeseen factors can affect your business revenue.

It's up to the business owner to decide the time period. But to avoid inaccurate forecasting, we recommend sticking to annual forecasts so that predictions reflect expectations and realities.

Accuracy of Past Data

Historical data is vital to create a revenue forecast. For example, your business has grown consistently at 10% in the last five years. You can predict that your business will still grow at 10% in the following years.

However, if your past performance varies, using historical data is useless, and you may want to try other revenue forecasting methods. Furthermore, using past data is not available for start-ups. In some situations, past data won't affect forecast revenues because of several external factors. Always take note of considerations when using historical data.

Wrong Computations

In plain view, wrong computations are easy to fix and prevent. You'll be surprised how many revenue forecasts go wrong because of simple arithmetic mistakes. Wrong computation stems from the lack of attention to detail. If you're using software or Excel sheets, double-check all data entries and formulas to guarantee accurate results.

Finding the Right Forecasting Method

A business can use several forecasting methods to determine their company's revenue. Choosing a financial modeling method is vital for an accurate prediction, and most business owners fail to consider the data they have at hand before going through the forecasting process.

There are four primary forecasting methods:

• Quantitative: This method is best for short-term forecasting. It uses numeric data to predict a company's revenue for a specific period.
• Qualitative: This method uses market research to predict a business's future. It also integrates human opinion, which creates bias.
• Time Series Analysis: This method uses data over time and statistical reasoning to forecast.
• Indicator Approach: This method uses vital variables and metrics like GDP to make a forecast.

Choosing the correct method starts with studying underlying patterns in your earnings. Don't be tempted to go the easy and short way if you want an accurate forecast.

Benefits of Accurate Business Forecasting

Not all businesses invest in forecasting, but a growing business should take advantage of forecasting to continue growing and make informed decisions for the improvement of the company.

Here are some benefits of proper forecasting for your business.

Continued Growth

In business, there's always room for improvement. When you do forecasting, you can see which area to improve to propel your business to success. Furthermore, forecasting can identify problems early before they can cause irreversible damage to businesses.

According to research, businesses that do regular and correct forecasting are 10% more likely to grow and outcompete their direct rivals.

Quantifies Your Business Health

It's one thing to say that your business is doing great but seeing the number gives you a clearer picture of how well you are doing. For example, your business has had a stable income of $300,000 annually in the past years. Your current revenue forecast shows that by the end of the year, your sales forecast will go up to $500,000.

The numbers show how many resources you can use for other business operations. Likewise, if your sales forecast drops, you can see precisely the deficit, and you can strategize how to bring your numbers back up.

Helps Achieve Your Business Goals

It's not enough to know that you want high sales, you have to identify the actual sales you want to achieve, and forecasting can provide you with the exact figures you want to reach. According to forecasting science, 97% of businesses who do forecasting reach their sales quota.

In contrast, for businesses that rely only on strategies and not maximizing forecasting, only 55% of them reach their sales goal by the end of the year.

Forecasting Helps Understand Customers

Revenue forecasting helps businesses attain sales efficiency by giving an insight into your customer's behaviour. By predicting your future sales, you can adjust your prices accordingly, roll out your advertising, and make time for product development.

Forecasting can show the period when your sales will spike. You can maximize the information to increase your inventory and generate more sales for your business.

Efficient Cash Flow Management

One of the reasons you should do forecasting is to help you manage your cash flow efficiently. The forecast can help you plan your payments and avoid delays and penalties. It also lets you see when customers' payments are coming into your business, so you strategically allocate your business resources.

Efficient cash flow management builds trust between your employee and suppliers. It can also help you negotiate properly when you need credit for paying your personnel or new business ventures.

Start Forecasting Your Success With Unloop

If you don't have experience with forecasting, you'll find it complicated to forecast revenue. Fortunately, Unloop offers forecasting services for small businesses looking to scale and assess their financial health.

Our forecasting services include:

• Your business's revenue and cost of goods (CoGS) down to every dollar to ensure you have a complete picture of your finances.
• Identifying pain points early on in your business so you can plan how to address them immediately.
• Making changes as we go along the way. We update our predictions to give the most accurate forecast results as your business grows.
• A team of professionals to guarantee that your finances are in good hands.

Forecasting revenue is essential if you want to continue scaling your business. However, forecasting is on the complicated side of accounting. We hope this blog post helps you plan better for forecasting.

If you need more accounting services, Unloop offers bookkeeping, accounts payable, and payroll. Book a call with us and talk to an expert for free!

There are a lot of reasons why bookkeeping and accounting are business essentials. Through proper financial management, you can track all the money coming in and out of your account. With all this data, you can calculate many details about your business finances, including your net income.

Net income may be a single detail in an income statement, but it means a lot for your business. Hence, you must know all about it.

In this blog post, we’ll dive deeper into the different methods you can use to calculate net income, why you should always be aware of this number, and what you can do after knowing your net income. Let’s go!

How To Calculate Net Income

The basic formula for calculating net income is Income - All Company Expenses. Though this formula is straightforward, what makes it challenging is the details you need to track, as expenses include the costs of goods sold, selling costs, operating and administrative expenses, asset depreciation, and tax payments. The good news is that methods are available to make your tracking and calculations easier and more accurate.

Automated Net Income Formulas

Bookkeeping and accounting have evolved from using Excel sheets to using automated software like QuickBooks, Xero, and Sage50 cloud. Although Excel sheets are still used today, it is more efficient to invest in software as they are less prone to errors. 

A bookkeeping and accounting software automates data acquisition from channels like ecommerce platforms, payment gateways, banks, and other applications. With software, there’s no need for manual input which minimizes errors.

Software also calculates automatically through built-in formulas, unlike Excel sheets where bookkeepers or accountants still need to add formulas to get results. Though the formulas may be correct, any error in linking cells can make the process more complicated and error-prone.

Through a software’s dashboard, you can easily see updates about your net income and many details about your business finances. You can also customize reports and generate them in just a few clicks.

Delegated to Experts

You can also delegate net income calculations to experts. Many bookkeeping and accounting firms have experienced professionals to handle your account. You can skip the hassle of learning the ropes of using software and let them do it for you as they use the same reliable tools. You’ll also have more time to manage your business with the peace of mind that qualified professionals are handling your books and accounts.

Aside from calculating net income, trained bookkeepers and accountants can also generate essential accounting reports like balance sheets, income statements, and cash flow statements to calculate net income. They know how to calculate net income from a balance sheet and other reports efficiently. 

With experts on board, your only tasks will be to check the accuracy of the details on the books, check reports, and use the data you get in decision-making for your company.

Reasons To Calculate Net Income

You already know that net income comes from deducting all your business expenses from your company’s income. Now, see the different reasons why you should always get the net income calculation correctly, and why you should give importance to this detail. What does net income signify, and what does it say about your business? 

Visibility on Gross Income

In computing net income, you’ll primarily see your business’s gross income. You’ll know whether you are hitting your sales target or not. If you see positive numbers, you’ll know your strategies are working. You can identify the best practices, so you can keep on doing them. On the other hand, if you see that you are not hitting your sales goals, you can strategize to change the situation.

Knowledge of Operating Expenses and More

Part of the reason you are not getting the net income you are aiming for is high expenses. Look into the details of your expenses and pinpoint the culprit of your high expenditures. See whether there are ways to lower costs to increase net income.

Realize Company Profitability

The net income reflects profitability, so it must be every business owner’s goal to see positive numbers. Though it takes work to turn your business into a profitable one, the efforts are worth it because it is through profitability that you can ensure that your business thrives.

Data for Investors

Since net income reflects your company’s profitability, it is among the first things investors will look at. Investors help grow your business through their investment, but they will only do so when they see that your business can maintain a stable income. A stable income shows that when they invest in you, their investments will return and grow.

Calculate Shareholders’ Earnings

If your business has shareholders, you’ll get their share from the net income. This share is called the dividend. You can agree on how often to send dividends, but it is common practice to send out dividends twice a year. The higher the net income, the higher the amount you and your shareholders will get. You and the shareholders have the option to reinvest this money to fuel the business’s growth, or spend it outside the company. 

Strategies To Spend Your Company’s Money Wisely

You’ve invested time, money, and effort to get the net income you’ve incurred, so it is just right to plan how you’ll spend it. To make the most of that money, these are the different things you can do.

• Grow your savings: You can save the money, so when the rainy days come and sales are low, you’ll have the money to manage expenses.
• Scale your business: You can reinvest your money to scale your company. There are many ways to do this, like improving your office, upgrading the tools you use for operations, or broadening the products you offer.
• Pay your debts: Debts, especially those with high-interest rates, can hurt your business, so be on top of them by paying on time. You can also pay them off completely if your income allows it.
• Reward yourself and your team: Give back to yourself, as you’ve been working hard to grow your business. You can do this by paying yourself. You can also give rewards to your team through bonuses and other incentives. 

Get Assistance From Unloop

Running a business means a lot of tasks to think about, including monitoring your business finances and net income. Net income reflects your company’s profitability which investors look at. It is also what you need to check in order to determine whether your business plans are working or not. And, of course, your net income defines your business success.If you are looking for help in net income calculation or bookkeeping to track all of your income and expenses, you can partner with us! We at Unloop have a team of experts to handle your financial tracking. Contact us now so we can discuss the details of our services and offers with you.