Amazon sellers endlessly focus and discuss how to get their products ranked on Page 1, how to maximize conversions, and how to get to that “holy grail” of success – 7-figure sales. But, you never hear them excitedly discuss accrual vs cash-based accounting, balance sheets or bookkeeping (I wonder why!!!). Bookkeeping ranks right by those exciting things such as a visit to a dentist or watching paint dry.
What most sellers, including many seasoned veterans, don’t realize is that in the life of any enterprise, especially an inventory intensive business like physical product business, the biggest payday is not when you are running the business, but when you sell it.
When you think with the end in mind, suddenly maintaining books correctly and having clean financial statements become the most important thing you can do in your business. If you are a fan of Ryan Daniel Moran, you can hear him talk about the issues he faced had when he sold his Yoga Mat business.
Why is Business Sale Day is Your Biggest Payday:
Here are some examples of sales to business value:
|
Profit
|
Net Cash
|
Company Value at Sale
|
|
$100,000
|
$20,000
|
$300,000
|
|
$200,000
|
$50,000
|
$600,000
|
|
$300,000
|
$100,000
|
$1,000,000
|
|
$500,000
|
$150,000
|
$1,500,000
|
BUT……This is possible only if the buyer has confidence in your business.
How can you give a potential buyer confidence to buy your business?
Real Bookkeeping:
1. Perfect Books that a potential buyer can review. Real books such as QuickBooks and to a lesser extent Xero but, NOT spreadsheets
2. Bank Records and Amazon Statements that match your books
3. Financial statements (profit and loss, Balance Sheet) for at least 2 yearsa.
Doing this from Day 1 will help you be ready when the big day comes. After all, luck is when opportunity meets preparation
Understanding profit by SKU (Especially Critical If You Are Only Selling Part of Your Business).
1. Good bookkeeping can give you real profit by SKU. No offense to the vendors of software that spits out “profit” by SKU but, a software is only as good as the data you put in and without expert guidance, chances of getting this right are remote.
a. Of all the seller books we have seen, less than 10% have done Amazon Accounting correctly – even those done by a friendly neighborhood bookkeeper
2. If you are selling some SKUs and not others, understanding profit by SKU becomes critical as the buyer has to know what he is buying and how much he/she can expect to make
No Co-Mingling:
1. Good bookkeeping also means, segregating expenses correctly
2. Any scent of mixing personal and business expenses (either by using the same bank account or same credit card) is a big NO, NO.
Accrual Accounting:
1. Make sure your Amazon focused bookkeeper is doing accrual-based accounting
2. It is tempting to do cash based accounting especially when you did a big inventory purchase in Q4.
a. Many bookkeepers also flip-flop from cash-based accounting to accrual bookkeeping and again back and end up double-dipping on inventory expenses. This will, however, create a huge red-flag and will scare off buyers
b. Cash-based accounting also violates the timing principle and makes it hard to understand the true profitability of the business
Compliance with Sales Tax:
1. Make sure you are complying with all the required Sales Tax regulations
a. Buyers will walk away if they see the risk of unknowns sales tax liabilities
There are many good reasons to pay attention to books from day 1 (or as soon as possible if your Day 1 was in 2014!!!)- nevertheless, boosting your company value and making it attractive to potential buyers is one of the most important reasons.
About Jungle Books:I was a former corporate drone and worked for several Fortune 500 companies as a Finance and Accounting Leader. As an Amazon Seller with a background in accounting and finance, I realized how Bookkeeping and accounting is a pain point for most Amazon Sellers. So, I set out to provide this service at a reasonable price and built a team of accounting professionals focused on bookkeeping for Amazon sellers. Reach me at
chakra@junglebooks.net for a free consultat
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