This past week I had the opportunity to visit with 30 hard-working ecommerce sellers at an Amazon Seller Retreat. I had a blast reviewing their accounting books and giving them suggestions. One question that came up several times was “Do I need Inventory Lab and Quickbooks or Xero?” It’s an easy answer – Yes! Let’s dive into why both Inventory Lab and accounting software are both needed.
Inventory Lab offers unique features that set it apart from Quickbooks and Xero. It enables direct listing of products on Amazon and tracks product costs and inventory levels by syncing directly with Amazon, providing real-time sales and stock information. Additionally, Inventory Lab offers profit and loss insights, including non-product-related business expenses when input manually. This software is particularly beneficial for sellers managing multiple SKU’s, saving valuable time.
On the other hand, Quickbooks and Xero serve as accounting software that generates Income Statements (Profit and Loss) and Balance Sheets. They connect to bank and credit card institutions but not directly to Amazon Seller Central. These accounting systems are vital for tracking financial data based on reconciled banking information, ensuring accuracy.
The Balance Sheet from accounting software is often overlooked but holds significant importance. Unlike the Profit and Loss Statement, it provides a comprehensive financial view of the business’s entire lifespan, measuring liquidity and capital efficiency. Comparing it to previous periods reveals the growth of assets and debt, including inventory balance based on financial activity and supplier payments.
To utilize both Inventory Lab and accounting systems effectively, list products and manage product costs accurately in Inventory Lab. For inventory tracking, adopt a modified cash approach in the accounting software, recording inventory purchases as an Inventory Asset on the Balance Sheet. Monthly, transfer the value of sold products from Inventory Asset to Cost of Goods Sold (COGS) on the Profit and Loss Statement. This ensures an understanding of profitability and Gross Margin.
However, watch out for potential pitfalls. Reconcile financial data to bank and credit card statements for accuracy. Regularly update Inventory Lab’s cost information and compare Gross Margin data between Inventory Lab and accounting systems. Any discrepancies should be investigated and addressed.
A best practice is to compare actual Inventory Asset values from the Balance Sheet with Inventory Lab’s inventory value quarterly. Inaccuracies should be adjusted through journal entries to align the values correctly. Properly managing inventory and financial data is crucial for understanding profitability and maintaining a healthy bottom line.
Using both Inventory Lab and an accounting system properly, you are set up to run your business like a business and know your numbers! You can calculate your Gross Margin and track it to ensure your business is on the profitable path. To learn more about this topic, Kim McCaffrey from Inventory Lab and I recently did a webinar on this subject. If you would like more tips to ensure profitability, check out my book Profit First for Ecommerce Sellers. It is available now! Contact bookskeep today for more information on ecommerce bookkeeping and accounting.