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Britney Brown joins to talk through knowing your numbers on Amazon, how ecommerce businesses are different from traditional ones, sales tax and how to manage it plus a free ebook to help
- CPA in USA
- LedgerGurus is Britney’s business
eCommerce Businesses are different
- Accounting on Amazon is very different to other businesses
- Bank accounts are usually where all the activity happens in most businesses and i
- eCommerce businesses are more challenging as most of the activity in the business is going through channels and only the deposits hit the bank account and they are only a summary
Accounting Problems for eCommerce Businesses
- Problems:
- Transparency of data – you sold $100k but only $70k got deposited
- Timing problem of when deposits land – when things land in terms of sales versus deposits and your month end
- Putting out cash 3-4 months ahead of sales and the lead time
- Getting all this data correct and knowing what’s happening
- A2X – Amazon to Xero is a great tool for getting the Amazon data during that month into your chart of accounts in Xero
- It ties the deposit back to the activity – giving a higher level of confidence
- Solves the month end recording problem by tying back the in-month activity
- Webgility is a similar product but A2X stands on its own
Knowing your Numbers and Optimizing for Profit
- Knowing your numbers helps so much in optimizing for profit
- How can an ecommerce business become as profitable as possible
- Understanding your margins is key
- Brining their manufacturing back to the US from China
- Had not done a great job of understanding how huge a task this was
- This decision almost finished them as a business
Optimizing costs
- Don’t allow costs to get hidden or lost in transition to a big change knowing your numbers is key
- Changing the way they do fulfilment – thoughtful what-if analysis is really needed here
- Understand margins by channel and margins by SKU
- Cost of Goods Sold by SKU and by Product line helps focus where your marketing spend is best spent
Trump Tariffs
- Understand how their relationship with different countries will impact their costs to get products across the line
- Can have a huge impact on your profitability
Cashflow Struggles
- Cashflow is a really interesting issue for ecommerce businesses
- Your P&L statement shows wild variations on how you’re doing and cash coming in and out
- Flow of inventory into the company – you have to pay out cash right away or 30-90 days
- You are having to pay out cash right away for this inventory
- This is not expensed on your P&L right away
- The inventory moves and sits on your balance sheet
- This inventory moves out of your balance sheet through Cost of Goods Sold (COGS) each month as product is sold
- That’s how the inventory hits your P&L and your net income
- But it’s not reflective of all the ways cash is moving through your business
- Press the importance of forecasting cash in your business
- Recommend you setup a structure with P&L on a monthly basis but looking at cashflow forecasting 6 months out
- things like Black Friday can create a cash crisis for a business if you don’t see it coming
Sales Tax
- Selling in US need to be hyper-aware of the sales tax
- Supreme Court decision on South Dakota versus Wayfair case
- Instead of location being Nexus for a company they left it upto the States to decide what creates Nexus –
- Lots of States looking at transactions as Nexus – economic Nexus – sell 200 trans or $100k of product in 12 months then you have Nexus in teh State
- You stealthily pass a threshold and your in Nexus in that state
- You have to turn on nexus in the state when you cross the threshold
- If you didn’t turn on and they audit you – then you can get hit by back sales tax
- And this hit could cripple your business
- The State doesn’t care if you didn’t collect it – they want their money
- eCommerce businesses are not carrying large cash balances as they are re-investing in their stock
- Beware Amazon might FBA your stock into multiple warehouses across States and you’re suddenly in Nexus in many states!
