How to Manage Amazon Finances:
Anyone with an internet connection and a little time can now shop on Amazon or similar e-commerce platforms like ebay, Etsy etc. This boom in online buying has boosted e-commerce entrepreneurship.
However, with more business comes more finances to manage — something that isn’t always a business owner’s strong suite. Indeed, bookkeeping and accounting are the most difficult challenges for 80 percent of Amazon merchants. Also, given the fact that the buyer from an Amazon store can be from anywhere in the world, the Amazon seller has to be careful about tax regulations in all those jurisdictions.
But there is good news: it only takes a little time and attention to get you all set up and running smoothly with your finances.
Starting out:
Like most things in business, to keep a streamline process in the long run, you must put in an extra effort and attention in the beginning. The same is true in this case. Following steps need to be completed in order to organize your Amazon finances:
Maintain a financial separation between your Amazon and personal accounts
You almost certainly already have personal bank accounts. Whether you’ve already begun selling on Amazon or are just getting started, it is strongly recommended to open business bank accounts as soon as possible. This will help you keep your books clean and organised, and you won’t have to sift through a slew of personal transactions to find the ones that are relevant to your business.
You may be tempted to go with your personal bank and open additional business accounts, it is worth exploring to consider other options. Each bank and account type has its own set of benefits and requirements.
Make use of an accounting tool
Find accounting software that goes beyond basic bookkeeping if you want to turn Amazon into a real business. The first things Amazon merchant should do is to look into proper accounting software that is (a) robust (b) easy to use (c) scalable and (d) modern.
Amazon sellers who want to establish themselves as a legitimate business should invest in a decent accounting software. Remember, saving few bucks on software cost does not justify hours of hassle you may have to undertake because of that choice.
Hire someone to manage your books
You may reach a point in your entrepreneurial journey as an Aamzon seller when bookkeeping becomes too tiring and unmanageable of a task, requiring you to spend far too much time on admin and because a distraction from your core business. When that happens, it might be a good idea to hire some help.
You can get here in one of two ways:
- Virtual assistant (VA): less expensive; may or may not be competent to keep track of finances.
- Professional bookkeepers and accountants are more expensive because they are specifically trained to handle this type of work. However, you can be sure that your books are in safe hand.
We recommend to have your bookkeeping and taxes with same person (accountant). Some VAs do offer bookkeeping and may suggest to engage an accountant only for tax filing. However, that is not recommended to ensure consistency and avoid costly errors.
Keep your books up to date on a regular basis
You’ve got your bank account set up so you can maintain all your financial transactions in a centralized location, and also accounting software and potentially some outer help. So, what’s next?
It’s time to create well-organized systems that you can follow as you operate and grow your Amazon business.
At least once a month, it is recommended to import the Amazon sales and fees report into your accounting software. Go to Amazon’s Payment Summary and Statements to do so. View the Report as well as the Transactions. There are tools such as A2X that can help in extracting such information and importing to Quickbooks or other accounting softwares. However, an incorrect mapping may result in either costly mistakes or over/ under payment to tax authorities.
Avoid these Amazon accounting errors
Three basic pitfalls Amazon traders make when it comes to managing their finances before going full steam ahead:
- Relying solely on Amazon’s information
- Expensing inventory
- Taxes are being overlooked.
Relying solely on Amazon’s information
Although Amazon gives you access to your sales data, it isn’t as comprehensive as accounting software. This information may be sufficient to make product level decisions. But, for a company-level overview of performance and especially to understand potential tax liability, it is important to look at accounting reports generated from accounting softwares.
Expensing inventory
You purchase inventory and consider it a business expense, and file for a deduction based on that expenditure when tax season rolls around. That isn’t how it works, though.
Inventory is an asset on your books till the time it is sold. It is recorded as business expense only to the extent it is sold. For example, if you buy 100 units of a product and sell only 40 units during the year. You cost of goods sold will be recorded only upto 40 units.
Taxes are being overlooked.
As an individual the only tax return a person is supposed to file is his personal tax return (T1). However, as business owner, you deal with numerous tax reporting and filing.
Some of those tax related filings include:
- Schedule 2125 (for sole proprietors) as part of their T1 return
- T2 (Corporation Income Tax return)
- GST/ HST/ QST/ PST (sales tax) returns
- Payroll remittance to CRA (PD7A)
- T4 (for payroll)
- T5 (for dividends)
- T4A (for Canadian subcontractors)
These tax filing obligations are listed in detail on this blog.
Monthly bookkeeping is of paramount importance not only to stay organized and avoid filing delays, but also to ascertain tax liabilities on month to month basis to set aside funds for that.
This is a significant issue, particularly for new business owners. Taxes are deducted at source from every pay check you get as an employee. However, as a business owner, you have to deal with numerous taxes.
- Income tax of corporation
At the end of year, when a business would file your tax return.
Continuing with your Amazon accounting
Establishing your finances for your Amazon business might seem discouraging at first, but if you set up the appropriate bank accounts, bookkeeping software, and ongoing systems, it’ll make your life calmer in the long run (especially at tax time!)
For more details about managing your amazon finances and getting support, contact finnection via email at info@finnection.ca or call us at (647) 795-5462
Disclaimer: Above information is subject to change and represent the views of the author. It is shared for educational purposes only. Readers are advised to use their own judgement and seek specific professional advice before making any decision. Finnection Inc. is not liable for any actions taken by reader based on the information shared in this article. You may consult with us before using this information for any purpose.