Hello and welcome to E-Commerce Accounting 101! My name is Tyler Jefcoat with Seller Accountant and I am an e-commerce accountant who speaks entrepreneur. This series of short videos will give you practical advice and some pro-tips on how to manage the finances for your Amazon or other e-commerce business.
In today’s episode we’re going to talk about 1 question:
Why should I care about the quality of my Amazon accounting?
Because come on Amazon always pays every 2 weeks and I am the only owner of this business. Accounting doesn’t matter right? I need to focus on growing my business right?
I just want to say that I GET IT! Successful entrepreneurs are hardwired to focus every ounce of energy creating value for their customers, employees and hopefully for themselves in the form of a profitable business BUT most entrepreneurs (and I’ve been this guy) also naturally focus on what they are good at and like doing and sometimes we fall into the trap of putting off important things just because we don’t wanna do it. Can you relate? I mean this is why I went into business for myself because I don’t like having a boss tell me what to do.
Since I know us (you and me) and I know that we need to be sold on why something is important, I’m going to give you 4 good reasons that having quality, accurate books should matter to you and then I’ll show you the more practical “how to” in some future posts. Ready? Let’s dive in!
1) Security and controls –
Simply put, you cannot ensure that employees, partners, vendors and scammers don’t steal from you if you don’t have a clear picture of where your money is going. This could be as simple as discovering that your merchant provider double-charged you or miss charged you or it could be a trusted employee embezzling money from your business. This thought will keep you awake at night unless you are able to look at an accounting system and at a bank statement and quickly say, “yeah that makes sense.” Good bookkeeping equals lower stress!
2) Valuation and capital raising –
Two of the most important moments in any business are when they desperately need additional cash in order to survive and grow OR when you as the owner are ready to put your baby up for sale. I was a banker for 5 years, I’ve sold a business, I’ve looked at purchasing businesses and I’ve talked to lots of business brokers and I can tell you without a doubt that having clear, accurate, believable books is one of the most important factors between you getting the loan or the deal done and having that deal fall apart.
This is critical. You might be thinking, “Well I don’t need cash right now and I don’t have any plans to sell my business.” I hear what you are saying but here’s the problem. Most bank deals and purchase deals require 3 years of quality financials to get the deal to closing and so you need to have your ducks in a row NOW because you never know when I crisis might emerge or when a buyer might knock on your door. It happens and you want to be able to get the best deal possible. To do this have your Amazon accounting must be in order!
3) Taxes – Don’t pay too much or too little!
Next let’s talk about taxes! The IRS puts the burden on you to prove that an expense was legitimate. This isn’t hard to do if you have a good bookkeeping system but it is impossible to do if you don’t! So you are left with either paying extra taxes which most business owners do or risking an audit where you would have to pay back taxes and penalties which also happens to way too many well-meaning business owners.
4) “What gets measured get managed” –
As Peter Drucker famously said, “what get’s measured gets managed.” As important as the other 3 points are this might be the most important reason to have accurate financials. You cannot grow your business unless you can learn to improve your processes and manage toward profitability AND you cannot do those things without some accurate scorecard to work with.
In summary, I hope that these 4 reasons (security, capital raising, taxes and having the visibility to manage your business for growth) have convinced you that having accurate and reliable books is crucial to running a successful e-commerce business. Seller Accountant can help you with your Amazon accounting needs if you ever run into trouble.
We’ll be posting other blogs that will provide additional insights and that will get more practical but for today thank you for reading this edition of E-Commerce Accounting 101! I’m Tyler Jefcoat from Seller Accountant. Let me know if you have any questions or even if you disagree with me. Also let me know what topics you are interested in that I should post about. We’ll see you next time!