With so many people choosing to start an ecommerce business by selling online and, in particular, Amazon, the need for accurate and helpful information is seemingly plentiful.
However, a lot of the information you’ll find about Amazon is heavily focussed towards selling on Amazon USA, as this is understandably the largest market for Amazon sellers worldwide and lots of the Amazon gurus on YouTube that tout information about Private labelling, Retail arbitrage and the likes are not focussed on selling here in Blighty!
Selling in the UK has its own unique advantages, not having to worry about different state taxes, for example, but then it has its disadvantages, like VAT, Brexit issues and exporting. All of which bring their own unique issues.
In this article, we will explore Amazon business and e-commerce businesses, their opportunities and the opportunity for eCommerce businesses to start and scale and look at some of the hurdles along the way.
So, when it comes to your Amazon Marketplace business, do you know the best method for managing cash flow, accounting software, figuring out your business strategy, knowing when you need to worry about making tax digital VAT registration, finding hidden costs or even when to hire an Amazon Specialist Accountant?
If you’re new to online business, then these things have probably never crossed your mind, or you’re here now, reading this information as you’ve realised you do need help.
The good thing is, we can help – Sometimes you simply won’t need an Accountant yet, and we can help you realise that. You may just need some guidance on an issue you have right now, and we can help you with that too! You may just need some basic information to guide you through Amazon Seller Central and help you make more profitable decisions…
Below are some of the most common issues and their broad solutions.
How do I manage my own bookkeeping?
If you have your Amazon account all set up and selling, then congratulations, you’ve done the most important thing, you’ve started selling and bringing money in!
So many people focus on the background tasks, like bookkeeping, cloud accounting software, systems and processes, and whilst these are important, the single most important thing is actually selling your products; without sales, there is no need to do bookkeeping as you’ll have nothing to input – and it’s very disorientating just putting purchases through the books!
So let’s say you’ve started selling; at what point do you need to invest in powerful accounting software systems or bookkeepers or an Accountant?
Let’s break it down into milestones based on your turnover (turnover = total income).
Turnover of £1 to £2000 a month
So you’re in a very small business, possibly selling a couple of items a day, and some days you’re not selling anything, don’t be disheartened as this is a great time to learn about your business, take the time to explore new opportunities, learn about advertising etc…
At this point, you won’t need any bookkeeping or accounting software to do your Amazon accounting; you can use a simple spreadsheet to note down your purchases and sales data, and you’ll need to make sure you keep hold of all invoices in hard copy and it’s best practice to back these up digitally – you can simply take a picture of any paper invoices you receive and save to a service like Google Drive.
Your spreadsheet (Google Sheets is a free online service) only needs to be simple as you can see below:
Turnover of £2000 to £7000 a month
At this stage, you’re really starting to get some traction and making your way towards your Amazon or e-commerce business something serious.
You’ll want to look at using a cloud based accounting software like Xero or Quickbooks to keep track of all money coming in and out, you’ll want to split off fees and advertising costs, and at this stage, you’ll need to keep an eye on your turnover as you’ll be reaching the threshold for UK VAT soon and will need to look to register for VAT very soon.
When you hit these kinds of milestones, it’s important to get specialist advice as there are different VAT schemes you’ll be able to join (not just the standard VAT scheme) that may save you a lot of money during your transition into a higher turnover as well as other tax liabilities you’ll need to keep track of, you need to make sure you are accounting for sales correctly, especially if you are looking at (or currently are) selling outside of the united kingdom.
You may also want to start selling to countries like the USA and Europe, and to do this; there are specific requirements and regulations you need to make sure you’re doing; without the correct advice, it can get very confusing and potentially costly, by bringing in an Amazon seller professional accounting services expert like us, you’ll not only ensure you are doing everything correctly, but you’ll also potentially save (or make) more money, making our service something that can potentially pay you to have access to.
Turnover of over £7000 per month
At this point, you’ll need to consider all we’ve stated above for the lower sales volumes, but it’s also time to consider introducing an accountant.
There is logic behind this rather than just trying to sell our service…
The way to look at specialist online accountants for Amazon sellers is to work out how much money they could potentially make you – that’s right, take a look at how much they can potentially make you after you have paid their fees – as a monthly fee is what most people look at and, I understand, a monthly fee looks, on the outset like an expense, a waste of money as, you can do your bookkeeping yourself, right?
But think of it this way… (all time estimates are based on minimum wage)
If your turnover is over seven thousand pounds, then you will be spending several valuable hours every week having to do your bookkeeping, let’s estimate 2.5 hours a week… Estimated cost £115 a month.
You may also have an employee to do smaller jobs, and you need to do their payroll and pension, let’s say an hour a month… £10.50 a month on payroll
So in monetary terms, you are already spending over £125 a month on this…
Now, imagine you could spend those same 11+ hours doing things that MAKE MONEY for you, tasks like…
Negotiating better stock prices – To make you a higher profit margin on all items sold.
Mastering your Amazon advertising (Ads) so you get more sales and spend less money – Achieve higher Return on Ad Spend (RoAS).
Ensure all your stock is always available, so stop any out-of-stock periods where you, in effect, lose money.
Just how many extra sales could these 11+ hours a month make you? Compound that month on month and you are making some serious improvements to your sales!
I can guarantee that if you put your energy only into optimising your advertising and ad spending, you will make more money! Think about what you could do if you concentrated on all of the tasks above.
And all that from just having someone take care of your accounting.
How do I manage my Cashflow?
So what is cash flow?
Cash flow is a lot like the heartbeat of your business, and here’s why it’s really important:
Money Coming In: Think of this as the oxygen your business breathes in. This is the money customers pay you when they buy your products or services. The more customers you have, and the more they buy, the more money comes in.
Money Going Out: This is the breath you let out. It’s the money you spend to run your business, like paying for supplies, salaries, rent, and other expenses. It’s natural to have expenses when you’re running a business, but you’ll want to make sure they’re under control.
Balance: If you’re breathing in more than you’re letting out (more money coming in than going out), that’s a positive cash flow. Great job! It means your business is making more than it’s spending, giving you a cushion to grow, invest, or handle unexpected expenses. But if you’re letting out more than you’re taking in (more money going out than coming in), that’s a negative cash flow. This can be a sign you need to increase sales, cut costs, or both.
How can I improve my cash flow?
Cash flow is very important to a business; if you have constant negative cash flow, you’ll not be able to grow your business; there are ways that you can help your cash flow. One scheme is the postponed VAT scheme that allows you to delay reporting and paying VAT on certain goods imported into the UK rather than paying the VAT at the point of import. This scheme can be beneficial for small businesses that have a high volume of imports, as it allows them to manage their cash flow more effectively.
One of the simplest ways to keep on top of your cash flow is to ensure you are keeping track of all income and outgoings as well as ensuring you keep your outgoings to a minimum (Think if the spend is necessary or if it makes you money) – easier to do when your business is small but harder to control when you grow your business, hence the need for accurate bookkeeping and best accounting software that’s up to date.
When do I need to register for VAT in the UK?
In the UK, the threshold for registering for VAT is £85,000.
This is £85,000 of total turnover, and to be clear, turnover is the total amount you have sold on all channels. This is based on sales data over a rolling 12-month period, so if your business experiences low and high sales periods, you may find that most of the year, you won’t expect to hit that £85k mark but then you get a bumper Summer or Christmas period that very quickly propels you towards having to be VAT registered.
I point this out as we have seen many e-commerce businesses clients come to us, and we quickly realise that they haven’t been accounting their turnover correctly; they’ve been recording their turnover as the amount Amazon sends to their bank as a disbursement – a disbursement is your turnover minus Amazon fees and advertising costs.
If you declare this amount as your turnover, then your true turnover amount could actually be 15% to 25% higher, meaning you probably should have already registered for VAT, and your tax returns, business numbers and tax returns will be totally incorrect – this will be a shock as if you’ve not expected or accounted for VAT on your sales then you will owe VAT and the amount will probably be quite a shock.
Flat Rate VAT Scheme (FRS)
One way to potentially save money on your tax liability is to look into whether the VAT Flat Rate Scheme (FRS) will suit your needs; the FRS means you pay a single flat rate on the total turnover of your business; you won’t need to record sales individually, and you won’t reclaim VAT on purchases (unless its a higher priced, one-off purchase).
To find out if the FRS is a good choice for you, it’s best to have an appointment with an e-commerce specialist accountant like us; we can let you know if this tax relief is the best fit for your business or not, as, even though the e-commerce rate of VAT is just 7.5% it may not suit your needs.
Business Strategy – When Should I Venture into Europe & USA?
If you think you’ve got the UK market mastered in terms of your selling strategy, you may want to start looking into selling your products further afield, like in Europe and the USA.
However appealing the prospect of expanding your e-commerce business into these massive markets is, there are a number of things you will need to get professional advice on to ensure you comply with UK and International regulations; it will also make your journey into selling in these new marketplaces much smoother.
Rather than go into the intricacies of doing this here, why not speak to us, we can offer you advice and guidance on crossing this bridge, as there are a lot of ins and outs involved and if you get it right the first time, it makes things much easier for you – we’re experts in assisting our clients with this and we’d be happy to give you a free 30 minute consultation to discuss further with you.