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Selling on Amazon is no small business. That means business accounting should be a priority if you’re one of the more than 2.5 million active sellers on Amazon and using tools like Fulfillment by Amazon (FBA). That represents billions of dollars in annual sales. And the marketplace just keeps growing, adding more than 1 million new sellers every year.
Even if your business is small, you have big responsibilities as a seller on the Amazon marketplace and as a business owner. Running your business profitably is one of your biggest responsibilities—and in order to do that, you might be curious about the best accounting software for Amazon sellers.
With dozens of options on the market, many of which integrate with industry-specific apps, it can be hard to choose the best accounting software for Amazon FBA sellers. We spoke with Cyndi Thomason, author of “Profit First for Ecommerce Sellers” and president of Bookskeep, an accounting firm specializing in accounting and consulting for ecommerce businesses, to get her insight and recommendations.
Although inventory management is a critical component of your profitable Amazon business, it’s not the only thing you need to take into consideration when you choose accounting software. Many Amazon sellers stop their search for accounting software when they find an inventory management app with profit and loss reporting. We asked Thomason for her thoughts on these apps.
“There are many inventory type apps that also present a profit and loss,” she says. “These systems do not have a reconciliation feature, and they do not have a balance sheet. As a result, there is no validation back to financial institutions.”
That may sound like a lot of information to take in, but actually, Thomason is touching on something we’ve written about before: the importance of having a true double-entry accounting system in place. A double-entry accounting system includes both a balance sheet and a reconciliation component.
To explain further: In a single-entry accounting system, your transactions are only recorded once by you and there’s no communication with a financial institution to ensure you’re balancing your books correctly. Double-entry accounting, however, makes it almost impossible to either omit or double record transactions that are run through the business’s bank or credit card accounts. That means your books are more likely to be correct. Unfortunately, many apps and software options with a heavy emphasis on one aspect of a business, like inventory, omit balance sheets and reconciliation features.
“These systems can be great to facilitate listings and show profitability by SKU, but unless they are validated against a ‘true’ accounting system, their data can be flawed,” Thomason says. “This occurs because [the] product costs are entered and forgotten. As costs change for products or shipping, etc., the system must be updated or the results will be incorrect.”
Before you settle on an accounting software for Amazon sellers, make sure it is a true double-entry accounting system. Below we have two options that can help with this, along with additional software components you might want to consider to get your Amazon shop in tip-top accounting shape.
With more than 2 million users worldwide plus an 80%-plus market share, QuickBooks Online is our pick for the best accounting software for Amazon sellers. Supported by thousands of accountants and bookkeepers, choosing QuickBooks Online as your Amazon accounting software guarantees you will be able to find support for your business.
QuickBooks Online also integrates directly with dozens of apps commonly used by Amazon and other ecommerce businesses, making it an especially great accounting software for Amazon FBA sellers. Even if your app doesn’t integrate directly with QuickBooks Online, you can usually get reporting from it to make manual entries into your accounting software.
If you choose QuickBooks Online for your Amazon business, remember that there is an entire suite of QuickBooks Accounting software. Make sure you choose either QuickBooks Online Plus or Advanced instead of Essentials or Simple Start. QuickBooks Online Plus allows you to set up class and location tracking, which will help you determine what segments of your business are most profitable. You can also track inventory in QuickBooks Online Plus, although you probably will want to use a third-party app to streamline your inventory tracking.
For many Amazon sellers, QuickBooks Online Advanced might be overkill. Most Amazon sellers won’t need the high user count or team training, although the unlimited class and location tracking fields could come in handy if you have a larger business. One reason to decide in favor of QuickBooks Online Advanced, though, is that it includes a subscription to Fathom—a powerful reporting and analytics software. Fathom’s customizable dashboards and projections can be priceless for Amazon FBA sellers.
QuickBooks Online Plus pricing starts at $70 per month ($150 per month with full-service payroll), and QuickBooks Online Advanced pricing starts at $150 per month ($230 per month with full-service payroll).
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Xero doesn’t have the market share and reach of QuickBooks Online in the US, but it is rapidly gaining momentum. Finding support is relatively easy, though not quite as easy as finding support for QuickBooks Online. This makes Xero a close second choice to QuickBooks Online when it comes to the best accounting software for Amazon FBA sellers.
Amazon sellers love Xero for its ease of use and lack of accounting jargon. No debits or credits here: In Xero, everything is either “money in” or “money out,” so you don’t have to know accounting at all to make the correct entries into the software.
One of the best things about Xero, though, is its open API. As Amazon FBA sellers make up more and more of the economy, the development of new and better solutions for inventory management, sales tax compliance, and selling will increase. An open API ensures Xero users will be able to integrate these new solutions quickly.
But the buyer needs to beware: Easily getting a solution into the hands of consumers can come with the price of flaws in the software. If you choose to use Xero and a third-party app for your Amazon accounting needs, enlist the help of an accountant or bookkeeper to ensure your data is integrating properly.
Xero has three pricing tiers, but few Amazon FBA sellers will be able to use the smallest tier of service. This means your investment will run at least $30 per month and could be $60 per month for the software. If you need payroll, Xero partners with Gusto, which starts at $39 per month plus $6 per employee or contractor per month.
In addition to QuickBooks Online or Xero, Amazon sellers also benefit from using A2X, a software that automatically fetches your Amazon settlements and will post summarized transactions to QuickBooks Online or Xero.
“A2X… is an app that automates the deposits and COGS/Inventory entries by pulling the appropriate data from Amazon for the payout period,” Thomason says. “One reason we love A2X is the entries into the accounting software are done on an accrual basis.”
As with double-entry accounting, we’ve often stressed the improved accuracy that comes with accrual basis accounting. Instead of cash-basis accounting, which looks at your finances as cash comes in, accrual basis accounting focuses on revenue and expenses as they are billed. This might sound strange to some small business owners, but this accounting method can help give you a clearer picture of your Amazon business’s profitability. Reporting your numbers on an accrual basis is particularly important to Amazon sellers, who must adhere to Amazon’s pay schedule.
“Since the typical payout from Amazon is every other week, doing deposits on a cash basis creates two months with three payouts,” Thomason explains. “This causes the month-by-month reports to look ‘heavy’ during those months.”
In this example, cash basis accounting might cause you to make poor business decisions based on cash flow timing, but it can also hinder the sale of your business as an Amazon FBA seller. “Brokers that position Amazon businesses for sale require the books [to] be presented using the accrual method for income and inventory,” Thomason says.
In short, accrual basis accounting can give you a more straightforward look at your finances and help you sell your Amazon business. With A2X’s focus on accrual basis, you won’t have to worry about making misguided decisions based on cash basis accounting, making this a smart choice for your Amazon business.
A2X pricing starts at $19 per month for very small sellers and scales up from there. Larger Amazon FBA sellers can contact A2X for a customized quote.
One of the biggest benefits of being an Amazon seller is that you can sell your product across the country, or even around the world. This benefit also causes a huge headache—sales tax compliance. Recent Supreme Court sales tax compliance decisions have created even more confusion around what sales taxes online sellers have to pay for shipments outside their state. Unfortunately, this is likely to get worse before we can reach any sort of resolution.
Although most accounting programs include a sales tax module, these modules only calculate the sales tax due based on information entered by the user. They do not manage sales tax compliance or filing the sales tax returns.
How can you alleviate the sales tax compliance headache? Choosing a sales tax automation program like Avalara or TaxJar takes the hassle of managing the 10,000+ sales tax jurisdictions in the United States off your plate, saving you countless hours and dollars. These programs connect directly to your online selling platform and, for a small fee each month, will file and remit all necessary sales tax returns and payments due for you.
Pricing varies based on the size of your business, but even if you need to subscribe to one of their larger plans, the investment in Avalara or TaxJar is worth the peace of mind these programs will bring you.
Technically, “Profit First” is a highly-popular cash management system and not an accounting software. However, when implemented using the modifications Cyndi Thomason outlines in “Profit First for Ecommerce Sellers,” it can help you manage the four critical areas challenging Amazon sellers: inventory management, debt financing, understanding financial statements, and maintaining your focus in your business.
“The primary differences between [‘Profit First for Ecommerce Sellers’ and the original ‘Profit First’ book] is the detail I go in to about inventory,” Thomason says. “First, I recommend a separate account to manage inventory cash flow. Second, I delve into the issues and strategies ecommerce sellers face in managing their inventory and cash flow related to it. I also teach them how to work with seasonality in both their inventory buying and in their sales. Finally, I give suggestions for how to use credit cards effectively. Ecommerce sellers are masters at racking up points and miles as it supports their flexible lifestyle. I show them how to have the money in the bank to pay the credit card balance to avoid the debt trap.”
Another modification Cyndi has made in her book is instruction on how to “reverse engineer” your Amazon business to support your family’s income needs. Reverse engineering your business to support your lifestyle is a very effective way to make sure you transition from your “day job” to being a full-time Amazon FBA seller.
Although it’s not an accounting software, implementing the “Profit First” system in your Amazon business can help you have clarity and peace of mind around your inventory management and cash flow.
Whether your Amazon business brings in more than $1 million or less than $100,000 in sales, you need top-notch accounting software to help you manage it profitably. “The best accounting software for Amazon Sellers is either Xero or Quickbooks Online,” Thomason advises. “Both of these systems are complete accounting systems that provide for reconciliations to bank accounts, and they provide balance sheet and profit and loss reports.”
When coupled with A2X, a sales tax solution, and the Profit First cash management system, you can enjoy many of the benefits of owning a thriving retail business without the hassles of having a brick and mortar store.
The solutions recommended in this article are the best options for U.S.-based Amazon businesses. If you’re outside of the U.S., you might need to consider different options. Regardless of where you’re located geographically, always do your due diligence to find the solution that will work best for your particular enterprise.
Don’t forget to consult with your accountant or outsourced bookkeeper for recommendations, too. Accountants like Cyndi Thomason at Bookskeep can assess the nuances of your business, and they will be able to guide you to great software that will support all the accounting needs of Amazon sellers.