How to know if my Amazon business is making a profit or not?
Do not make this common mistake.
Towards the end of the year I get many messages and read many posts from sellers who are getting their books together for taxes. Typically the seller can always tell me what their sales numbers are but they are vague about how much they have in unsold inventory, what their cost of goods sold is, and generally aren’t sure how much their net income is, or if they even have any profit.
How in the world do you know if your business is profitable throughout the year if you don’t know these things??
Why would you not want to know if your business is profitable throughout the year???
Please do not run your business recklessly or irresponsibly! Some sellers don’t even know what their numbers are for 2 years ago yet!
Please do not be that person.
I can tell you for a fact that sellers who have a growing, successful business know their numbers monthly basis.
I speak with sellers regularly who are shocked to learn they have “good sales” but a net loss. It is because the margins are small, they are holding too much in unsold inventory, and after expenses, there is a net loss. That, combined with more debt than assets, is a dangerous situation.
Do not judge the success of your business based solely on sales. I assure you it is a mistake that could mislead you into thinking you have a growing, profitable business when you do not.
ALWAYS know these key metrics, at a minimum:
– Unsold inventory at your buy cost
– Total amount of debt held
– Debt vs assets (checking + inventory)
NOTE: if debt is greater than assets, you have negative equity which is not good. This is equivalent to owing more than a car/house is worth.
– Gross margin (sales – cost of goods sold)
– Net income (gross margin – operating expenses.)
If you haven’t already, I suggest reading my answer about how to get your books in order.
I sincerely want each and every one of you to be wildly successful. Having a profitable business can change lives. If you want to change your life and make your goals and dreams come true, you must take the accounting responsibilities of your business seriously.
Think about your “why;” is it to pay off bills, to be your own boss, to gain financial freedom, to have extra money for a house/vacation/college… And once you know your why, do everything in your power to make your business meet your personal financial goals. Neglecting your accounting is not doing everything in your power to achieve your goal.
You have the ability to change your life and meet your goals, just be sure you are honest with yourself about whether or not you are doing everything you should be, and if not, make changes so you can make your dreams come true!
***stepping off soapbox***
Anna Hill is the founder of Accounting We Will Go, a firm that provides accounting and bookkeeping services along with training for Amazon sellers.