Accounting For Amazon Sellers – Tips You Need To Know If Your Selling Online
Today Kris Gramlich and Dustin Kane are joined by Richard Starkey from CronosNow as they discuss accounting for amazon sellers.
Every online seller needs to learn more about this topic. One thing all Amazon sellers hate is having to deal with accounting. Sellers put it off until the last minute and don’t want to deal with it. Well, CronosNow is here to help.
CronosNow helps eCommerce companies with their accounting. Listen to this podcast to get great accounting tips for amazon sellers.
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Accounting For Amazon Sellers
– Hello everyone and welcome to episode 79 of Two Amazon Sellers and a Microphone brought to you by Sellozo. Today Kris and I are pumped up. We’ve got a great guest with us today. Richard Starkey from CronosNow. Richard how are you doing?
– Yeah good to meet you guys. Good thanks having me on the show.
– Absolutely yeah, we’re glad to have you on for sure because this is something that we haven’t touched on much. And it’s really good for all the people that are listening, all the sellers that are listening just talking about accounting for your business. Probably not the most sexy topic you can pick but it is super super important. And I’m excited to talk to you because I know there’s a lot of things that sellers are missing out on and it’s a huge piece. So we’re glad to have you here. Tell everybody where you’re located right now because we were talking about this before. Kris and I are kind of jealous.
– Yeah, the great thing about being a modern day accountant is we can do our work anywhere. So I’m currently looking at my window at the mountains in Risan Kotor Bay in Montenegro man.
– Gosh, that’s awesome.
– So I won’t complain too much, yeah.
– Oh we’re here in rainy Kansas City so we’re jealous.
– Well listen we’ve got a few downfalls of the place. It’s like living in the 80’s, there’s no McDonald’s, no Starbucks, nothing like that. But I can’t complain, it’s the most beautiful place I’ve been and I’ve been quite around the world so absolutely amazing.
– Well definitely have to check it out for sure. Well let’s dig in a little bit. Richard why don’t you tell everybody before we get started talking about the accounting for sellers, why don’t you tell everybody a little bit about your history, sort of how you got started. And what made you take this avenue sort of to help eCommerce clients, so I’ll let you tell your story.
– Cool, I think the quick elevator pitch version of it is I became a CPA sort of accountant equivalent back in South Africa, gosh 20 years ago. Worked up to partner, became a very banker, mergers and acquisitions kind of guy. And 10 years ago landed up in an accidental PO of an online education business. And in that business we bulk our systems specifically around the finance operation, education’s a very finance driven business. And yeah sure, sold that off and started up ChronosNow and moved to Montenegro, became a bit of a nomad. And just focused on online sellers right? Was really fascinated by the tools available due to CAD accounting specifically. And artificial intelligence in terms of document reading. You know the type of systems that we build out now for Amazon sellers would have cost us hundreds of thousands of dollars to implement 10 years ago. Now you can do it for a couple of hundred dollars a month, it’s absolutely amazing. So enjoy it and love working with small businesses. And you guys know more than I do. What Amazon sellers have is an opportunity to build out a business from their garage, from their home office. We’ve never seen anything like that. So yeah, just exciting to be part of people’s journeys as they grow their little empires and abilities to support their families.
– Yeah, well you’re spot on. And Kris and I talk about this all the time and that’s why it’s nice to have you on the show. Just all the things when you start this business. I mean Kris and I were sort of the same way. We started it as a side hustle but then it quickly turned into a real business. And then you realize oh my gosh there’s so many aspects to this. I mean with Sellozo we’re taking about advertising and that’s just one piece of it, super complicated. And then of course we talk about all the other things, inventory management. And then I think a piece that gets lost in the shuffle a lot and at least for me, I know I go and dump a bunch of stuff off to my accountant and I know he wants to murder me. It’s something I could probably do a lot better with but I just hand him a big file. He probably wants to kill me. But accounting is super important. I mean understanding where your business is. And then of course we’ve been talking to a lot of people right now, I mean a big thing in this space is exiting. People who sell these businesses. And if you don’t have all that stuff lined up your accounting, it’s pretty hard to present your business to a buyer. So let’s talk about this. If someone wants to work with you, when they get started what makes you different then let’s say going to your local accountant that does accounting for any kind of business? What makes you different?
– I think the accounting world overall is a lot of the manual work that you used to go and take to your accountant or CPA, that’s no longer a usually time consuming process for my team right. We’ve got tools that read all your supplier invoices and can do most of the work for you. Bankseys already feeding into things like Xero and QuickBooks. It’s amazing how quick and automated it is. But what a specialist does in any industry is they’re able to really understand all the ins and outs for that industry. So there’s a practical side. Picture a CPA who is sitting down with your Amazon report. Picture your two payouts a month and those thousands of line items in that TSB that are behind that summary report twice a week, that payout report. Now you’ve got two ways. Either you’re gonna have a CPA who just doesn’t understand that and what they do is they take that net amount dump it into revenue or sale. That’s not revenue or sale so you don’t get accurate numbers. Or you’re gonna have a CPA who’s pedantic. And they’re gonna try and record all those individual transactions as individual orders in Xero and you only get a bulk of $10,000 at the end of the month right? Because it’s a man hour driven approach. So because of the great tools like modern driver A2X, we understand how to get that Amazon data into the bookkeeping like in a matter of a few minutes a month. So the practical time saving is one aspect. And then understanding what drives your business. Now, most Amazon sellers, most small business owners don’t even look at their income statements and balance sheets. It’s a tool for tax returns right? You’re gonna have some type of dashboard tool that’s reporting on your SKU level probability analysis etc. But that’s not giving you the full picture of your business right? So for our guys we’ve developed custom reports to make the income statements really useful. So what we do is also spend the time coaching you on how to use them and what it means. So you’ve all heard the adage profits don’t equal cashflow. A guy goes Keith my CPA is telling me I’ve got profits but I got no money, where’s the cash?
– Well it’s a bit gray. You gotta understand working capital. So what we do is by automating so much of the backend, we’re able to just add so much value into that Amazon sellers life. And the difference is I’ve also got an Amazon store, I’ve got my own Shopify store. I’ve got a couple of these investments that are my side hustle. And I’ve got a business partner that knows how to do the really difficult stuff, the stuff you guys do, the advertising. And we are running my business also a seller in some form right? So they understand what our customers needs are. It’s not an external bookkeeper who doesn’t speak your language. So I think that’s our kind of big driver. We’re able to add real value because we understand what a seller needs from their finances.
– I like that you said most of the team is sellers. They’ve been in the space before, they understand the background, they understand how Amazon works. But you’re right like Dustin mentioned earlier, this is an area where I immediately, like my eyes glaze over. I don’t even wanna talk about it, I hate it. I just refuse to get involved with it. I just hire somebody else to take it up. Because sellers, this may be a majority of them. A majority of them are more worried, a majority of us are more worried about finding new product, launching product, trying to rank. When somebody comes to you, like when a seller comes to you, is there an audit process that takes place? Or what’s the first process that happens? If I come to you and say Richard I need some help with accounting, what do you guys do then first with my account?
– So before that I need to understand, I kind of have two boxes for my clients. So is something scaring you or are you hopeful about something? So guys that come to me and they just, they need to understand their tax returns. They’re behind on sales tax, on income tax. They have forgotten that Amazon doesn’t do your Florida sales tax for you so they tell me they got a big nasty bull. There’s something that’s chasing them. There’s a big stick and they need my help right? That’s one customer who comes and genuinely they’re the minority for us. We generally work with the guys come in and you’ve got a five year plan. In five years, you know he’s heard about the Amazon aggregators. We look those as call it our hope plan. So guys who either want a bold exit sell or they’re seeing this business as something that they’re trying to build onto autopilot to create some annuity income right? So instead of doing a 401 in shares or retirements annuities, build out a couple of Amazon stores, maybe a couple of Shopify brands. Those give you something which you get a much higher return on your investment. So either way then we have got a very different set of kind of rapports and how we treat that customer versus the sales tax customer right? A customer who just wants to come in and get their taxes done, it’s all about compliance, it’s about speed. And then we hope that if in 12 months we will have turned him or her from a fear client into a hope client right? All our clients we wanna just be able to say the accounts are foundation. They’re gonna help you make a better decision in running your business, understanding working capital. It can help you grow your business, IE get your funding through AccureMe, Seller Standing, whatever it is. And then obviously if you’re gonna exit, what are the aggregators looking? We’ve got relationships with a few of the aggregators. If you’re not doing proper cost of goods on a accrual basis, you aren’t gonna get a sale done right? I’ve had one conversation a month ago. Someone came in cost of goods sold was not being recorded properly therefore their profits were all over the show right? Was picked up by changing that discussion, getting the correct number, the purchase process 40% higher for them. Could have went another way around right? Because your cost of goods sold is dependent on a couple of things. But if you’re just putting in a number into a aggregators kind of financial model, you wanna make sure that’s the correct number and you can argue for maximum value. The other thing that’s also important, what we try and audit is we also wanna understand the business model. For someone on Amazon who’s doing retail arbitrage, selling brands that are really exotic, I’m not spending a lot of money generally on PPC right? So they’re not advertising. Versus someone who’s got their own brand. Their business model is driven by advertising. So in an earlier stage that advertising ratio compared to profitability, giving their return on advertising spend is a number I obsess about in our reporting. Which I find most people don’t think about in the correct level. I hope I’m making some sense.
– Oh yeah, for sure.
– Yeah go ahead Kris.
– Yeah so I’m looking at this, Xero is a tool that I’ve been using just because I found it, I like the way it’s set up. I like the platform, the UR and the dashboard. I’m looking at your site and it looks like that’s something that you guys integrate with, is that right? Xero you guys will integrate together? It makes it a little bit more of a smoother transition, is that correct?
– Yeah so Xero the accounting software right? So Xero and QuickBooks online are the two bigs. And guys I’m a Xero guy. I don’t really care if you’re a Xero or a QuickBooks guy. A system is a system for accounting. You can make them both work. We ditched QuickBooks because you need to specialize as accountants in one tool. So Xero is where all the accounting happens. But then Xero doesn’t talk to Amazon or any of the eCommerce platforms. So what needs to happen is Amazon needs to be connected into Xero and there’s multiple different tools to do that. The one most guys use is A2X Accounting. Basically these tools are taking all those hundreds, hopefully thousands of orders that you’re doing in your Amazon store. And it splits out, aggregates all that information and pushes it to Xero not in terms of thousands of transactions but in terms of one journal or one invoice that it push into Xero. And classifies sales, refunds, promo, FDA fees, Amazon fees all correctly done in an organized way. So A2F is kind of the most used. We are changing models from A2X to Modern Driver now. I can give you guys if you wanna share out with your users Modern Driver’s got a two month kind of free promo and two months free trial which is great. The reason why there’s a bit of a move is there’s a couple of tools now that pop up that are like A2X. It aggregates all that Amazon info and pushes to QuickBooks or Xero. Modern Driver, Agility, there’s a couple of them. But some of them are now adding extra tools, with great great supporting dashboards, profitability dashboards. Hence why we chose Modern Driver. So that’s the real tool that’s eCommerce specific. Xero, you know Xero’s an accounting tool. It’s just great to use online. It makes my life quicker and easier and therefore your invoice cheaper.
– This is stuff I need to learn more about. I mean I’m guilty, I’m guilty. Like I mentioned earlier, we just like to launch products and get products to rank and make new listings. I have something running in the background but if I ever wanted to sell I would have to really start to get this going the right way. Because it’s probably a mess, I’m pretty sure. What’s that?
– I’m not sure if you use some type of profitability dashboard when you launch your products right? Does having all the costs, including shipping costs, performance costs, all done on the SKU level saves us from finding this usually beneficial tool. And to be able to set up let’s call it a deficient order cutoff. For some sellers they might only wanna know about orders that are a lot making. But some of them you might wanna say you want a 20% ROI on every order, or a 40% ROI. And you don’t wanna report and go and look at all of them. You only want the system to tell you which ones are not meeting that criteria right? So something like say for Modern Driver, there’s a few dashboards that do this. But imagine you log in everyday, you get a system that pops up and says here’s the 10 orders from yesterday that were deficient, it tells you why right? That’s the real power in the reporting dashboards. But Xero doesn’t do that, it’s Modern Driver.
– Yeah that’s good to know. I got that pulled up here, I’m gonna check that out. Yeah and I mean I have something in my back pocket that does SKU by SKU. Sellozo does that, we do that. So that’s kind of nice. Like I get to see my margin per item and what my profit is per item. So that’s helpful. But diving in deeper and going to the next level, there’s where I lack, that’s where I’m lacking. I think a lot of sellers do that because again we’re focused on launching products. We don’t really wanna add this now because it’s not fun to do, it’s time consuming. But you mentioned the aggregators. They’re looking at your numbers, they wanna know what your profit is. And if you don’t have this tied up, you’re just gonna be keep spinning your wheels and you gotta get this figured out. Your closing time’s gonna be longer than the 40 days or whatever that it is.
– And you might get the wrong number right?
– Yeah you might get the wrong number. It’s something I need to be more, I guess more passionate about or more serious about is really what I need to get involved. But it’s just a topic that sellers just don’t wanna talk about, they hate it.
– It’s something that all my successful clients don’t worry about their accounting. What they do is they pay someone else to do it. It’s the tail wagging the dog right? So I get very concerned when customers are phoning me and they’re doing maybe 10 grand a month. And they’re worried now about setting up big accounting systems. Or they’re wanting to build some sales and they’re phoning for advice. Sometimes I spend 50 hours setting up learning how to do Modern Driver or A2X and set that up. Go figure out how to launch products and sell stuff. You’re gonna pay someone 180, 200 dollars, 300 dollars to do your accounting. What’s the best use of your time?
– Yeah that’s a good point.
– I completely agree and we talk about that all the time on this podcast is stick to what you’re good at, stick to what you love to do. And don’t bog yourself down like wasting a bunch of time trying to learn accounting. Same thing with PPC. I mean if you’ve got lots of products and you’re running a bunch of ads, PPC is complicated and you could spend hours a day on it. So if that’s gonna take away from your ability to research and launch new products or focus on your brand or whatever, then you’re right it’s a terrible allocation of your time when you could fairly affordably take care of it. So I’m looking on your website. Again for anyone who’s listening, it’s cronosnow.com, C-R-O-N-O-S-N-O-W.com. And it’s really fascinating I’m looking at the How it Works section and there’s a lot that you guys are doing. I mean it’s much more than just accounting and bookkeeping. There’s a lot of consulting and help on here. So talk about inventory management. How do you help sellers and eCommerce people manage their inventory better?
– So from an accounting perspective, let’s split inventory management into two things. There’s operation, it gets very complicated if someone’s multichannel right? So imagine you’ve got an Amazon store, Shopify store, Walmart, and then you’re also selling on something like Etsy. Trying to make sure that not just the pricing, but that the inventory quantities are correct on all the platforms, that’s a challenge right? There’s some great tools like Sellbrite. There’s 101 tools that link that up. From an accounting perspective right, what we need is cost of goods sold need to be an accurate number on accrual basis. When I say accrual basis, if you’re selling an item in this month, I need the cost for that item to be recorded in this month. Even if you’ve purchased inventory three months ago and it’s been sitting in a warehouse right? So what we try and do is we try and keep it simple. Most of our customers come to us with some form of inventory system already with they’re trying to get the different platforms to have the correct inventory number right? And they’ve got some type of system that gives them costing on that system. Now half of them also however have a little warehouse in their garage where they keep a whole bunch of their inventory and that’s not on any system. So what we do is we look for the gaps in the operation. What we’re doing is using Modern Driver we can give you accurate cost of goods sold. Because Modern Driver links up with that accrual system. And then the inventory system gives us an inventory balance at month end. So we’ve always got this control, that acts as like a stock count right? So we make that process as simple as possible. And we’ve got that very wrong in the past. I used to do detailed inventory systems and it would cost 10 times more than what I would do now. And because the person’s not doing the stock count of what’s in their garage, the numbers are wrong anyway right? So the other thing is to look for gaps. How their systems are currently not working. And then making sure we get the inventory and cost of goods sold accounting done correctly. That’s step number one. Based on all the experience of what we’ve broken in the past with our businesses we also didn’t consult when someone says listen I’m running on spreadsheets or spreadsheets and hope. We’ll try and specify which inventory system and a process for them to make that inventory system work. And that could be different. If you’re a manufacturer, if you’re making your own products, there’s great tools like Katana MRP which will help you get the actual costings right when you’re making the inventory. And to use it at a tool to manage the production. If you’re buying and you’re importing from China, you might pay a 40 or 100% cash deposit. But the product’s only gonna be in your warehouse in two months time right? How do you account for that? How do you get that into a system and drive towards your channel. So we can help with that setup as well. To be honest most of our clients come in with inventory system already in place. We just make sure we find the gaps and order them.
– Well you mentioned the warehouse in your garage. You’re talking to two people that definitely have that amongst other things. And that is interesting about the inventory. I think I’m lucky in one sense that like 95% of my business is on Amazon. So I have a Shopify, I sell on eBay, Groupon, all these things. But it’s not an enormous amount of sales. But not managing inventory right and you’re right counting it in your garage or any of that. I mean I was doing it with like post-it notes. You know that little box? I’ve allocated these for Shopify. But then I don’t know I’d have so many times when I’d get an order and I didn’t have the inventory available so managing that is really important. What about managing when to buy inventory? Because I know when you’re doing your taxes that whatever your inventory, you can correct me if I’m wrong. At the end of the year whatever you have as inventory counts as assets or income or how does that work? And if you have too much it’s a bad thing and how does that work exactly? When’s the best time to buy inventory?
– Look let’s assume the majority of people, your Amazon sellers are small businesses right? So they’re in this threshold where they’re allowed to do cash accounting, they don’t have to do accrual accounting. So what we do is we run week end reports in the same set of accounts. We can throw off an income statement based on cash account and on accrual account. For decision purposes only accrual accounts. Like cash accounts your income statements is purely for an income tax return right? So let’s talk accrual accounts. In a perfect world you’re doing accrual account. So accrual accounts they’re cost of goods sold. You have inventory which lands up on your balance sheet when you purchase it right? Let’s talk debits and credits. Debits you make your asset figure, credits bank or payable right? Then what happens is when you are selling those products, the product leaves the warehouse. You take that item out of inventory and turn it into an expense right? So then what you’ve got is you’ve got a consistent gross profit line. Your profits are consistent. Selling price for every sale, cost of good sold for every sale in that period. At the end of the year for a small trader right who’s allowed to do cash book accounts. What I have found if quite a useful tool is to say listen we’re gonna do cashflow. And if you’ve made some profits and you don’t wanna pay taxes what you do is you buy inventory just at the end of the year. You make sure the payments are gone off your books. But remember next year you don’t get the deduction again right? So next year your profits will be overstated. So it’s just kicking the can down the road. So I generally will try and avoid that scenario. I generally try and get cash books out of the way as quickly as possible. So when you’re accrual accounting, if you buy at the end of the year, beginning of the year, it’s not gonna make a difference right? What you don’t want is to spend all your cash on inventory, setting it in inventory on the balance sheet and now you don’t have cash to pay your taxes. So if you’re planning properly, what we should be doing is looking at your profits every month every quarter. And you should have an extra little savings account. We give you estimates of what your income tax for the year will be and you’re just putting that amount away. And either paying it across to the IRS or you’re putting it into a savings account so there’s no surprise when you get to 15th of March or 15th of April. But there’s a lot to the tax planning. That’s where we also get quite involved. Tax planning can also come down to things like are you running an LLC with flow through or you’re running an S corp? There’s a couple of planning tips around that which is also probably worth discussion.
– Yeah that’s let’s do that. When you set that up, because I just went LLC but there’s advantages there right? Like on which classification you do. If a seller is starting out and trying to incorporate or whatever, what classification do you recommend them go after?
– So when you’re starting out, assuming it’s a side hustle, even if it’s your full-time business. LLC, single member disregard as the tax. So when you’re starting out up until my clients I say $100,000 in profits. Up until then, LLC flow through do not worry about an S corp. Once you’re doing 100 grand, some people will tell you as low as 50, 60 or 70. When we do our math of the extra cost of running an S corp versus an LLC, it’s probably more closer to 100 grand right? So when you’re an LLC, first of all you’re only filing your one income tax return right? So the form’s part of your income tax return, you’ve got until the 15th of April if you’re in the U.S. And your CPA’s gonna cost you, I can give you kind of cost, the CPA’s gonna charge you around $500 for that return, they’re doing a schedule fee, not too bad. But remember on that you still gotta be doing the self employment taxes right? The 15 point whatever percent for medical and Social Security. So when you start making closer to 80, 90, 100 grand. What you’re gonna do is you register, you convert and it’s lets you do an S corp. And what you’re doing is you have to still pay what’s an acceptable amount of a salary. So let’s say you’re paying yourself 30, 40, maybe 50 grand of that 100,000 as a salary to payroll, you’re paying self employment taxes on that. The amounts above that so 60 grand above that up to 100, that you’re taking out as dividends right so you’re not paying a self employment tax. That’s the big difference. But as an S corp, you’re now filing 15th of March. Your tax returns probably gonna be one and a half thousand dollars. Plus you gotta have someone administer a payroll for you every month. And you lose a couple of schedule fee benefits like the home office deductions, etc etc. So we find generally closer to 100 grand then it’s worthwhile because the cost of compliance that’s increased on an S corp then it makes sense to do. And tail wagging the dog right. S corp means extra tax returns. Now you gotta do a business tax return and an individual and and and. And if you’re paying offshore contractors are you doing your WACM’s and whatever else. The huge amount of paperwork that makes you wanna drink. .
– This is fascinating to me and this is why, I mean if you’re taking this seriously, why you should be taking advantage of all of this advice and these services because this can make a huge difference for you. I mean just listen about that cutoff about when it’s a good time to maybe go to an S corp. That’s something I’ve learned from this and that’s really interesting about just those break in the numbers is that’s something you would never do if you were trying to do this on your own, try to research this through. The other thing that makes me wanna drink at night is when we were, this is something that Chris and I have talked about before about expanding into other marketplaces. It’s something that we tested out, never really did full throttle yet. But once we do that, then there’s all kinds of accounting headaches I feel like, VAT tax all that stuff. How do you help out sellers with their VAT taxes and planning for that and paying them and etc.
– So I just wanna clarify one thing. So from outside we work with clients around the world. So there’s stuff that we do in house. The bookkeeping, accounting, setting up Xero, Modern Driver, that’s the skeleton. There’s a whole bunch of stuff that plugs into that. Income taxes, sales taxes. In the UK there’s a whole bunch of financial statements and company house submissions that those guys have to do. In the US or LLC annual filings are pretty easy. But what we don’t do is we stick to what we do, adding advice, support, and building the system. And then we’ve got a network of partners for anything that requires a form, a signature, and a submission to a government department. We don’t any of that in house. So a lot of our clients come to us, people are very loyal. Most of our clients have had the same CPA for 10 years, which was their fathers CPA. They do the taxes, they understand the intricacies of their own state. We work with that CPA. So CPA’s are doing the things we do really. They just can’t do it at the cost we can. So we work with them and then we do is we’ll pick up from our metric of CPAs, our research. Keith are you doing this deduction? Because this is something big to Amazon sellers. They go oh no we haven’t thought about that. Then they go off and do it. Sales tax and if you’re talking sales taxes or back taxes. Keith you’ve been selling, you’ve had an excess and suddenly you got a letter from Florida saying you owe us $10,000 in VAT taxes or sales tax, what do you do? We’ve got specialists because sales tax in different state is really weird. So instead of going and filing eight quarterly returns, you might do a voluntary disclosure program. So our sales tax guy might charge you $1,000 to do that. But it’s a lot cheaper than doing eight times $150 individual tax return. In that state, does that state take anything other than anything other than actual physical written checks? No, so you can’t get an instant pay from your bank account. So we’ve got this troubleshooting. We’ve got two kind of sales tax and corporation specialists that we use. All their work’s everyday is when something’s gone wrong right? So they know how to fix and they’ve got contacts in all different states. What we do is for sales tax we help our customers know when the nexus points have been arrived at. And we must come back to warehouses in a moment on nexus. But then we set up a tool. We’ve moved everything across to Avalara but TaxJar is great. All these tools that help you manage and file your sales tax across the US. And then also in the EU and the UK, GSP and VAT in Canada etc. So again, that’s our partner for that. But you gotta know how to set it up and you gotta know when to set it up. And then we’ve got little specialists. An Amazon seller selling in Europe. Good luck, that’s quite tough but we’ve got a great guy in Germany that we use and he gets your VAT sorted out. So we have to provide him with all the numbers so that he knows what to pull out from the return. So what I just find interesting is guys will phone me saying gee, I haven’t done my sales tax, I’ve got a nasty letter, can you help me file it? Okay cool, have you done your bookkeeping? No. Like do you want me to make up numbers? You can just make up numbers and write them yourself on the form right? So yeah, think of us as a skeleton and all the really smart people. We’re just good at doing what we do. All the really smart legal brains and tax brains plug into us.
– That’s great. I mean just having that network and knowing where to go. And you mentioned something because this will be good for people that are maybe starting to sell. Anyone’s who’s listening right now is the concept of nexus. I remember Kris and I both started selling in 2014. And then when you realize you put your inventory into FBA and all of a sudden you’ve got a nexus in 45 states, that’s a little overwhelming. Explain to everyone what nexus is and how you can make sure you’re taking care of it.
– Cool so if you’re selling just on Amazon, you’re just starting out then don’t let it stress you out. Just keep an eye on your Florida sales. And if you start getting to like 200 sales a year in Florida, call someone like me. Don’t let it stress you out. But if you’re selling multichannel, so you’ve got a Shopify store, any store where you are responsible for charging, collecting, and paying sales tax. Then this next two minutes, I’ll try and keep it to two minutes apply. So nexus means that if I’m saying you’ve got nexus in a state, it means you’re charging sales tax to a customer in that state okay. It’s not about where you are, it’s about where your customer is, that’s the first thing. So nexus is more complex, I’m giving it a really simplified version here. But you’ve got in essence physical presence nexus, IE you’ve got a business. You’ve either got your warehouse, you’ve got staff, etc in that space. We’ll come back to about whether an Amazon FBA warehouse means you’ve got physical presence right? So let’s say you’ve got the inventory and you’re running from your house, you’ve got physical presence nexus in your state. So generally that’s the starting point. The next question is maybe you’ve got a couple of pre FBA warehouses, specifically now with all this COVID inventory restriction. They’re keeping the numbers down in the FBA warehouses. Many of my clients are setting up 3PL providers. They’re using My FBA Prep, Deliver, Property FF. They’ve got all these different places set up. That is a little bit of a gray area now right? So if you’ve got inventory in an Amazon prep warehouse, do you have physical presence? The clear reading in almost all the states is yes. So let’s say you’ve got a warehouse in Cincinnati. Cincinnati’s a good logistics center for the Amazon guys. So some of the 3PL warehouses are pretty good there. So you set up your warehouse using a 3PL provider. Well technically you’ve got nexus then in Ohio. So all your customers in Ohio, you should be charging sales tax to. Now on Amazon, Amazon’s already charging getting it and paying it across to you, you don’t have to worry. But if you’ve got a Shopify store or eCommerce store as well. Well now you’ve gotta start adding and saying to all those customers I’m charging you sales tax. But here’s a little trick is don’t start doing it until you’ve registered right? So until you’ve actually registered for sales tax in their state, don’t start charging your customers. Okay it’s like illegal. Sorry, I’m turning a heater on I’m freezing. Montenegro great weather except for this week we’re in the snow. So choosing your warehouse, your pre-Amazon warehouse. A strategy I try and make sure my customers think about is if they’re doing high volume, can you choose one state if you’re multichannel? And a state where you’re not selling a lot to customers. You just don’t wanna be, let’s face it most of our customers are going to price point you against someone who’s not charging them sales tax right? They’re getting hip to the sales tax. To them it doesn’t matter if it’s a price or a sales tax component, they’re paying extra. So that’s something interesting. And also consider whether or not your 3PL providers really need to be in five different locations throughout the country. If it’s a pre FBA warehouse. If you’re selling on Shopify, well can you take an extra day to deliver and maybe have a little bit more in terms of UPS or FedEx? It’s worth considering because sales tax, every state you’re at $300 to $400 for registering. And anywhere from $100 to $150 per quarterly filing per state. Now you could be maybe as low as $80 but it adds up right? Plus you need software to keep track of all of it. So that’s physical presence nexus I think in a simple way. You’ve also gotta link that back to some of the thoughts around where you register your LLC versus where you live. I know I’ve got customers in California who don’t want their LLC in California because it’s 800, like they’re gonna get nailed $800 to set it up. So they wanna set it up in Wyoming. But guess what then you’re gonna get charged income taxes in Wyoming and California, even though you’ve only got an LLC in Wyoming. So don’t be, what’s it penny wise pound foolish or whatever it is.
– I make up things as I go, it’s a terrible one. The next part of nexus is your economic nest egg. Now go back 10 years ago, eCommerce was not an issue. The sales tax laws were not worrying about eCommerce. What did happen, there was the catalog and mailer businesses which are starting to raise some concern. But then basically what happened almost all states, they came up with this 200 transactions or $100,000. That was your nexus threshold. So if you did 200 transactions into a state or $100,000, well then you had economic nexus. A threshold, you met a threshold, therefore you must register in that state. Now that’s just not practical. Let’s say for most of us selling on Amazon are not selling items for $1,000 apiece or $500 apiece. It’s gonna be sometimes as low as 10, 20, 50, $100 right? So 200 transactions is next to nothing. Now a state is not wanting you to come and fill out a sales tax return and pay them $50 in sales tax. Like it’s not worth their time right? So most states are doing one of two steps to remove this kind of crazy 200 items sold in the year threshold. First of all they’re either changing it to 200 items and $100,000. So if you’ve done 200 items but not $100,000 don’t stress. And some of them I think California’s like don’t worry about quantity, make up to $500,000. So my guidance to any multichannel seller. If you’re an Amazon seller just keep an eye on Florida. If you’re a multichannel seller though and you’re starting to sell across Amazon and your other channels. If you start getting to 200 items in the year, jump onto Avalara, TaxJar, they’ve got great little tools on there that are for free. And just type, so you’ve got 180 sales in North Carolina. Jump on there, see what is the nexus.. Just go sales tax North Carolina, it pops up. And when you read down if you see $100,000 or 200 transactions, then you know you gotta think about it. But if you see 100,000 and 200 don’t even worry about it. Or if you’ve got like a 200,000 only value or 500,000 then don’t even worry about it. That’s the most practical. Before you go spend money on Avalara and TaxJar and a CPA to go and do a whole bunch of work, that’s your threshold.
– Yeah, TaxJar is great. That’s what I use is TaxJar. And I’ll tell you having Amazon collect now in almost all the states except Florida is certainly helpful. That was not the case awhile ago. Amazon sellers had nexus everywhere and you were on the hook for sales tax. And there was all this gray area about did you really have a nexus or not with this? Having the Marketplaces do that for you is so much better now. But yeah I mean even that, you don’t think about when you sell on other channels how now you bring that back in. What if you’re fulfilling your orders from FBA for your Shopify orders? Do you have a nexus now? You know those sorts of things. There’s all kinds but just having this conversation, understanding the things. I mean where we don’t realize how we could help our business is super important. I highly recommend everybody reach out to you that is looking for this kind of service. And if they want to how do they do that? How do they reach out to you?
– The easiest is to jump on our website and there’s a Book a Strategy Call blasted all over the website, the Contact Us page. And what that does is books you a 45 minute call directly with me or with one of my business partners Karen. And we’ll chat through. And I’m happy to share, I book out a certain number of hours, about 10 hours a week just to help even startups. So there’s no obligation. Just share this kind of information. That’s the easiest way yeah. I think an email only gives me a bit of information. So jump on the site, book some time with me, have a chat, I think that’s the easiest.
– Absolutely, it’s chronosnow.com. It’s scrolling on the bottom of our screen right there. Go to the Contact Us page, fill it out, get that strategy call with Richard. I think just that’s valuable right there. And Richard there’s so much more to cover. We’ll have to get you back on again.
– In a few months because I mean this landscape is always changing. The Amazon world changes everyday and every aspect and I can’t even wrap my head around all the accounting stuff. So it’s just great. But we’ll have you back on, we’ll dig into a little of some more of these things a little bit deeper. But thanks so much for jumping on, giving us this knowledge, letting us know how your service can help. It’s been absolutely fantastic. And for everybody listening, if you like content like this. If you listen to this and you realize oh my gosh I’ve totally failed on my accounting side and my bookkeeping side of my business, this is huge information. If you wanna learn more, listen to experts in this space, please go and like and subscribe to our podcast. Go to the Sellozo page on Facebook and the Sellozo channel on YouTube. Subscribe to those, turn on notifications so you get notified when we go live with great people like Richard. And so you’ll have all that information there. And also you can subscribe to our podcast on whatever podcast platform you listen to them. Richard thanks so much for joining us. We’ll be back at this again tomorrow everybody. Have a great day.
– Great guys.