Your accounts tell the truth about your Amazon FBA business. Or at least, they should. If you’re thinking it’s time to sell up, your books better be in good working order. Because a top-paying buyer isn’t going to invest in anything less.
By Guest Blogger, Callum Armstrong, Content Marketing Manager at A2X
Here are our top 5 tips for preparing your Amazon accounts to sell:
- Make sure you have accrual-based books
- Ensure your inventory is recorded properly
- Cut any unnecessary expenses
- File and clean-up your records
- Talk to an expert
Let’s unpack each of these.
Get accrual-based financials
When it comes to your bookkeeping method, you have a few options. The two most commonly used are the cash and the accrual methods.
It’s all about timing. The accrual method involves recording transactions at the time they take place. Money may or may not have changed hands yet. The cash method records them only when money changes hands. It can leave a lot out. Accrual-based books are undeniably the best for ecommerce businesses.
Here’s why:
- Accrual takes delays between an order and receiving the cash into account. So if you want an accurate snapshot of your business at any given time, you need to use accrual.
- It helps you forecast. Knowing when orders were actually placed and what’s coming up in your business will allow you to make more informed decisions.
- It helps you budget. With an accurate understanding of what’s happening in your business at all times, you know how much money you need to maintain operations, and what is safe to withdraw.
- Your profit and loss (P&L) statement and balance sheet will always be up to date. By recording your assets and liabilities correctly, you can use these reports strategically in your business.
- Many Amazon FBA brokers who can help to sell your business won’t without accrual-based books. This is how important they are to buyers.
- It’s required by the generally-accepted accounting principles for businesses of a certain size.
How to get accrual-based books
If you’re currently using another method and keen to go accrual-based, simply integrate A2X with your sales channel and accounting software, and chat with your bookkeeper about the transition process.
Along with a host of other features that make it the “gold standard in ecommerce accounting”, A2X will organize your books via the accrual method automatically.
Learn more about using your balance sheet.
Learn more about using your P&L statement.
Ensure inventory is recorded correctly
When you purchase inventory, you are trading one asset (cash) for another (inventory). This should not be recorded as an expense. (Which will happen with the cash method of accounting).
When it comes time to sell your business, the unsold inventory needs to be taken into account. If it isn’t, you could fall victim to the “ignorance discount”. In other words, your buyer could get free inventory whilst you aren’t reimbursed.
How to record inventory correctly
Organizing your books via the accrual method should solve this problem. But you may also need to look at existing inventory and ensure it’s taken into account when you calculate the value of your business.
Learn more about setting up a dedicated inventory checking account.
Eliminate excess expenses
If you’re spending money on something for your business, there should be a return somewhere down the line. Anything not serving your business is a waste of resources. Are you using too many apps with overlapping features? Perhaps you’re paying rent on a warehouse that’s too large? Or struggling to keep your FBA fees down. It (literally) pays to sit down and review every expense that leaves your business.
How to cut unnecessary expenses
For each one, ask yourself:
- Is the value of this thing immediately obvious? Can I measure it?
- Is there another way I could get the same value for less or free?
- Could I justify this expense to a buyer?
This is where talking to your ecommerce accountant can be hugely beneficial. They will be able to suggest where you can maximize any financial integrations you do have and save money.
Learn more about understanding cash needs and sources.
File and clean-up your records
You might know how your business runs but a new buyer won’t. And during the due diligence stage of the selling journey, they’ll want all the details. Everything should be written down and stored securely. Files should be accessible, clear, and up-to-date. A stranger should be able to find anything they need when looking at your records.
How to organize your records
Start a Google Drive or Dropbox. These are secure and on the cloud, so you shouldn’t lose them. Start files for each area of your business with subsections.
Here’s an example for a business that started in January 2022. These folder ideas are non-exhaustive, but give you an idea of how you could keep things simple:
[Amazon business name folder]
- Account
-
- Invoice
- January 2022
- February 2022
- March 2022
- April 2022
- (etc)
- Payouts
- January 2022
- February 2022
- March 2022
- April 2022
- (etc)
- Sales tax
- 2022
- Balance sheets
- January – April 2022
- May – August 2022
- (etc)
- P&Ls
- January – April 2022
- May – August 2022
- (etc)
- Invoice
-
- Inventory
- Products
- Branding
- Marketing
When it comes to your accounts, many of the reports mentioned above will be available in your accounting software. This is just an example of how you might organize your filing.
Talk to an expert
Experience is invaluable. Amazon accountants and business brokers are experts. They know exactly what Amazon buyers are looking for and how to help you increase the value of your business. Because at the end of the day, it’s the buyers who decide what your business is worth.
Get in touch with the bookskeep team for advice on prepping your financials to sell.
Learn More…
For a step-by-step guide to valuing your Amazon FBA business and increasing its value, check out this free comprehensive resource. Feel like you’re ready to sell? Use this free downloadable assessment tool to make sure you have done everything you can to get the best price for your Amazon business.
About the guest author:
Callum Armstrong is the content marketing manager at A2X. To help ecommerce sellers and their accountants succeed, the content team at A2X creates educational resources around ecommerce, accounting, and ecommerce accounting.
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