Automating My Amazon FBA Accounting

Ever since my post about my attempt to run a business without an accountant, I have received a lot of emails asking me to write a post that goes into much more detail on how I do my Amazon FBA accounting. So here it is.

FBA stands for Fulfilment By Amazon, a service offered by Amazon that lets you store your products in their warehouses and sell them on the Amazon platform.

If you have no idea what I’m talking about, check out my detailed how to guide on how to start an Amazon FBA business.

It’s an awesome business model, that lets a one man band run an international business selling thousands of products. I currently have stock in UK, USA, Canada, Germany, Italy, France and Spain.

Which is very cool. But does mean that Amazon FBA accounting is a massive pain. Multiple currencies, multiple taxes, and thousands of transactions. When I first started, I used to record everything in a spreadsheet, and send that spreadsheet to an accountant.

That accountant had no idea what was going on and I used to spend hours and hours trying to explain everything. And I’m still not sure he got it quite right. Small and cheap accountants aren’t going to be experts in international business.

So after that, I started looking at automating it.

Introducing Xero

Xero was my first step and it was so successful that I now use it for all my businesses. From this blog, to the coffee shop and of course, Amazon FBA.

It is a bookkeeping system that draws in information from all your bank feeds, bills and invoices. And then reconciles all the transactions. From there it can generate any report imaginable. Including the quarterly VAT return which it can automatically file with HMRC.

xero-vat-return

Apart from making it very easy to do your tax returns, I also use the reports to very quickly see how profitable the business currently is and that catch any expenses that are starting to get out of control.

amazon-fba-xero-business-without-accountant amazon fba accounting

As my business is registered in the UK I use Xero UK. There is also Xero USA which is exactly the same but set up for American businesses.

Introducing A2X Accounting

But even though Xero made things a lot easier, it required a lot of manual copy and pasting from the different Amazon marketplaces. Then, about a year ago, I came across A2X Accounting.

A2X Accounting is a service designed to be the final step to completely automating your Amazon FBA accounting. It translates the information from your Amazon seller central account into invoices and then imports them into Xero.

It is quite expensive. The standard package is $59 a month and if you are selling internationally you will need two subscriptions. One for Europe and one for the Americas.

But without it, you need to write each invoice individually. That can be up to four a month per marketplace. And I sell on seven different marketplaces… trust me, it takes forever.

I update my accounts every three months and for me the time saved and the removal of human error makes it worth the cost. But you will need to assess your business and act accordingly. If you’re still in the bootstrapping phase it is probably worth doing it manually yourself.

While I was writing this blog post I contacted A2X and they kindly offered us a discount. If you want to sign up then use code ARBAPR2017 for 10% off your lifetime subscriptions. The code is valid until the end of November 2017.

Tying Together Amazon FBA Accounting

A2X imports into its dashboard all the information needed from your Amazon seller account and splits it to correspond with the payments that Amazon sends to your bank account.

a2x-main-screen

The first time using A2X Accounting you need to select which Xero account each line in the invoice links up to.

You can set this up however you like, but I prefer creating a separate account in Xero for each Amazon country.

To add new accounts in Xero, simply go Settings -> Chart of Accounts.

a2x-import-to-xero

 

That screenshot above really shows why I think A2X is a lifesaver. Can you imagine typing all that out, multiple times a month for all seven marketplaces I sell on? It was a nightmare.

You only need to fill in the drop down boxes the first time you set up. After that, A2X will remember what you previously selected and auto-populates the list.

Once you are happy, it will be sent to Xero as a draft invoice. Approve that invoice, then match them up to the transactions into the bank account:

amazon-fba-accounting-a2x-xero

Xero is able to synch up with your bank account and pull in all transactions automatically. I use Santander, but most banks in the UK are covered.

And that’s it. All your Amazon sales and expenses will be correctly logged in Xero.

At the end of each year, my accountant just: logs in, asks me a couple of questions, adds a few extra expenses to maximise tax efficiency, and then generates the returns. Easy peasy. And it actually costs less than paying for the extra hours it took to decipher my old spreadsheet-based system.

  • PAP

    Great article,

    One question though do you have to register to the individual marketplace country you are trying to make sales for VAT?
    For instance lets say i am based in an EU country and want to sell in the UK do i have to register for the UK VAT and register also for a company?

    Thanxs

    • There is a VAT threshold of turnover before you need to register in each country for distance selling. Here is a link with the numbers for each country:

      http://www.vatlive.com/eu-vat-rules/distance-selling/distance-selling-eu-vat-thresholds/

      So for me I am registered in the UK. I pay VAT at the UK level on sales in all of Europe. But once I hit €100,000 of sales to Germany, I need to regsiter there and pay VAT there instead of in the UK for the sales in Germany.

      • PAP

        Thanxs, so if i am a seller that wants to use Amazon UK FBA but i am not living in the UK i will have to register first at the UK level. Is forming a company compulsory or can i register as an individual for vat returns?
        From your experience how easy is to fill VAT returns?
        Thanxs again

        • Umm, no it’s a bit more complicated than that.

          There is two things going on. Local VAT where you have a business presence, and distance selling where you don’t.

          Im based in the UK, so don’t have the extra layer of having the business elsewhere, but this is how i see it:

          You have a business presence in the country you are registered in. You do not need to register for VAT until you hit the VAT threshold in that country. Until then you pay no VAT. Once you do you will need to pay VAT on every sale in the EU.

          When you hit the distance selling limit in one of the countries you are selling in. Then you will need to register there as well. And pay VAT only on the sales to that country.

          For instance.

          You are registered in your country Country A.

          You sell in UK, France, Germany and Spain.

          You are registered for VAT in country A, and UK, and Spain.

          You pay VAT in country A for all sales to Country A, Germany and France. Sales in UK are paid in UK. Sales in Spain are paid in Spain.

          Sales in USA or outside of EU has no VAT.

          Sorry it’s all a bit complicated. Could be worth speaking to an accountant!

          You can register for VAT as an individual in UK. Not sure if you can do it as a foreign individual.

          • Darren Lee

            Hi Sam. Great article. Thanks in large part to the inspiration taken from your article, I have just uploaded amended Chart of Accounts in to XERO and will be signing up to A2X to upload sales dating back to when I started middle of last year.

            With respect to sales to EU countries, I use the EFN model for now so as to get my head around the basics of working with a large number of transactions and VAT accounting. My previous business as a contractor had way less transactions and I am keen on XERO making the admin burden scaleable. I understand there are real advantages in using the PAN EU model by reducing cross border fees, but I am put off for the time being as I understand PAN EU would require statutory registration for VAT in each of the EU countries due to the fact the item sold is located in the country the sale is made if that makes sense?

            Anyway… if I have that right, then this would introduce an accounting challenge… perhaps a number of challenges. XERO seems to me as if it is designed from the ground up for the non accountant… and I will say from my perspective, it does this admirably. But how do we think it would handle sales for each of the countries simultaneously in a way that allows to break them down in to a series of VAT returns? I am going to look at this over the coming months in anticipation of having to file five separate VAT returns. If all five countries charged the same rate of VAT, this would be splendid… but of course… they are not. Germany is 19% and Italy is 22%. Add to this, that not all allow for quarterly returns from the get go… Germany (I think) requires a return to be done monthly. I think you can request quarterly returns and I understand they may allow for this dependant on gross sales but I think we would expect the request itself is subject to a lead time by which time we’d have submitted any number of monthly returns so the problem remains in the first instance.

            Apologies in advance for any inaccuracies here… I am in the easily stages of looking in to this and apologies for brevity!

            I am rather keen on the PAN EU model… it understand it can make us more competitive sellers by utilising local Prime fulfilment times and cuts out the EFN cross border fees, but it does seem to attract a whole raft of administrative burden. I understand Amazon have a partnership with a company that will handle this for us by doing the returns on our behalf (name of the company escapes me) but I would still imagine there is an accounting consideration. If we could handle multiple EU returns by using XERO, then I would probably just do them myself.

            Anyway, if anyone has looked at this before now… would be grateful for any hints or tips. In the meantime, I will put the question to XERO. I currently subscribe to the standard plan. I know the Premium plan handles multiple currency, but not sure if It can cater for more than one VAT return at varied VAT rates… let’s hope XERO has a trick up it’s sleeve… fingers crossed!

  • Darren

    Hi Sam – thanks for writing this. I found it an inspiration and have myself signed up with XERO.

    Re A2X… I was all set to go with uploading the lorryload of historical settlements all chuffed with coffee in hand when I spotted that you had the option to set roll up the settlements (as it seems you have done?), group them by SKU (yeah baby… that one is a bit of me…) or to group sales by product type and to group refunds, shipping and other charges which is neat should you wish to. Another thing I really like is that you can add tracking codes for users who have set-up tracking in XERO. For those who don’t know what this is – you can set up two tracking options in XERO so as to get more granularity out of your XERO reports. One thing to note here though is that i think if you have a second tracking arrangement set-up in XERO… I think it throws A2X a bit… or at least, it threw me… could be wrong here though.

    In XERO… I have set-up one for Marketplace and the other for SKU as my tracking criteria. My aim for doing this was to make it easier and a whole lot more nimble to be able to run profit and loss statements at marketplace level and right down to SKU level to monitor [at a glance] if they are remaining viable. Unfortunately, I could not get this to work correctly when applying this in A2X. The reason I could I could sense what it seems at odds with the fact that I run ‘Tracked’ inventory. like many, I do this [tracked inventory] because I have quite a few SKUs at any one time and need a little help monitoring them which XERO is doing rather well for me. I thought that by grouping settlements in A2X and by SKU, I would be all set and sure enough… I have a quantity passed to XERO along with the correct account code! However… refunds do not be handled in the same way… passed almost anonymously with no unit amounts… just one unit and a rolled amount as a unit cost. This would invariably fail in time with a tracked inventory as many returns [thankfully for for me at least] are ofter returned resold provided the it is in resellable condition so effectively, aggregating sales could lead to trying to sell more items than XERO understands you have on hand in your [tracked] inventory which would error in XERO. For many users just rolling up their settlements and/or those not interested in tracked inventory e.g. PL sellers with thinner product lines… A2X I think is excellent offering but for those with tracked inventory I think should approach with caution as it could will in time could collide with XERO over number of items in the inventory which could prove a distracting pain to remedy. It is for this reason, I opted away from A2X as it did not suit my XERO set up.

    Eventually then, I did a bit of number crunching for about a week in excel to create myself a tool for uploading in to XERO. I first uploaded invoices to XERO and created a SKU called ITEMREFUND and ensuring the SKU reference appears in the description and the second tracking option. Once I approve the invoice, I then go through it deleting everything without ITEMREFUND in the item code and then add in the SKUs that are to be refunded… this rebalances the refunds and ensure the items are taken from my tracked inventory
    At first glance, this could look at odds with the financial freedom lifestyle… but the half hour to an hour i take each fortnight to means that it takes minutes to assess to performance of every single SKU I have which can be done on in front of the telly, in coffee shop or on a beach with Sangria and iPad in hand. Glorious… I truly do love XERO.

    Thanks Sam for writing this and your other blogs. Some very useful and well outlined stuff in there. This one is one of my favourites on the topic of FBA as many do not normally cover this aspect of accounting normally pointing us in the direction of accounting… I prefer to do my own and XERO has made this a breeze.

    Just a short note on PAN EU… I did look at this option to avoid the cross border fees but understand that the VAT threshold would no longer apply and require statutory registration due to stock being located outside of the UK at the point of sale. Options I have looked at for handling VAT returns on our behalf would be anything but cheap. XERO accounts can only produce a single VAT return so this will need to be considered but I think a workaround can be done either using tracking category to fit each VAT registered country and/or setting up a tax code for each of the countries as this should then be reportable.

    Thanks again.

  • carlos sesma

    Hi Sam – this a fantastic article! Thanks for sharing 🙂

    I´m starting up a new FBA business in the UK and I was thinking on using fba-hero to get VAT registered and get the EORI number I need to import goods in to the UK.

    Once I get the EORI number, do you see the need to continue paying 150 euros a month to file VAT or can Xero do the job?

    Thanks & Regards,
    Carlos

    • Xero will file the VAT returns for you. But why do you want to get VAT registered? You don’t need to register until you hit £85k in sales in a 12 month period. You’ll just be paying extra tax for no reason.

      You don’t need to be VAT registered to get the EORI. It’s a free online form you fill in here: https://www.gov.uk/eori

      I don’t know anything about FBA-Hero so can’t comment on their services.

      • carlos sesma

        Hi Sam, my business is registered in the US and I thought there was no VAT threshold for business outside the UK?

        • Ahh yes you are correct. Sorry I assumed you were UK based. Yeah you can do that, or register a separate business in the UK. I’m not sure which would be cheaper! It’s probably easiest doing the route you’re suggesting.

          • carlos sesma

            That´s great, thanks Sam. What companies or services have you used to get fiscal representation in the european countries where you had to register for VAT? FBA-Hero offers Vat registration (including fiscal representation) at 150 quid a month which I thought it was too much

  • jamiebrown6

    Great article – and I’ve worked out something very similar.

    However, how do you record cost of goods sold, and record inventory in Xero? I cannot work out a way to handle profitability in Xero so that Amazon revenue takes off COGs.

    • Are you using the COG & Inventory Beta features? I just started using them and I am getting everything setup to do this. It is definitely possible but I am still working out my workflow for it.

  • Thomas

    Great Article and has helped me loads and i’ve just atarted to set up A2X.

    Can anyone give me advise on mapping the tax codes. Im in UK and VAT registered. Amazon have my VAT details so they don’t charge me the VAT element on their fees. Looking at your tax coding in a2x you have 20%(VAT on expenses) for fees, commission etc. Would this be correct for me or should i have it as VAT excempt. I have been in touch with A2x but as they are US based they were not 100% sure what i should enter. Although she did say most UK companies set it up with 20%(VAT on expenses).

    I can’t get my head around it.

    Thanks