It’s been said “it’s a jungle out there.” And the fact that we have a business entity named “Amazon” somehow fits right in when it comes to commerce in today’s world.

Are you one of those doing business with Amazon? Or wanting to do business with Amazon? Selling on Amazon is not only might be a viable option for selling your goods but, in this day and age, almost a necessity.

How do I decide whether to take the plunge and sell on Amazon?

Firstly, it is encouraged by Amazon itself. They have a subscription portal with testimonials and all you need to get started on the website.  However, as with any business decision, consider a few things before you sign on the (digital) dotted line:

• Consider that it is but one channel of distribution. Don’t put all of your eggs in one basket.
• Does your product fit with Amazon? That is, while Amazon is looking for variety in its offering, does your product really fit being sold through this channel?
• Understand your inventory. Do you have the inventory to keep up with their demand? That is, can your supply chain keep pace with Amazon’s?
• Have a profit goal. Like with any other venture, there is a learning curve and with it a curve to profitability.
• Be clear on the cost of doing business. Like any other channel, there is a cost of doing business (it isn’t free). Know and understand all of the costs and how they fit with your total cost model.
• Know the risks. What’s at stake in doing business on Amazon?
• Do you have the time to manage this channel?

After you’ve gathered all of these data, then you will be in a better position to decide if Amazon is for you.  And once you take the plunge, consider the time and effort it will take to monitor this (now important) channel of distribution.  Like anything else in your supply chain, you need to monitor it.

If you would like to learn more about doing business on Amazon from an accounting strategy perspective, give us a call or write to us. TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.

*photos courtesy of Unsplash; Amazon logo and references are trademarked items of Amazon, Inc.

Like a character in a drama, yet another alphabet soup personality appears and takes center stage.

Oh, EBITDA, where for art thou? In other words, who the heck are you and why should I tune in?

All kidding aside, if you want to provide a really clear picture of your company’s financial health, you need to not only know what EBITDA is, you should understand how to calculate it.  The acronym stands for earnings before interest, taxes, depreciation and amortization.  It is a great tool to help understand a company’s ability to generate cash flow and judge overall company operating performance.

Whew!

So how do I calculate it? All of the elements are found in a company’s operating statement within their annual SEC Form 10K. Those elements are:

• Earnings (net income or net loss)
• Interest expense
• Income tax expense
• Depreciation and amortization

The basic calculation is done by adding up all the expenses, subtracting all of the line items that are income (such as interest income).  This number is then added to the net income.  The result is the basic earnings of the company, unencumbered by the expenses.

What’s it mean?

It is an evaluation tool that allows comparisons between companies and tells a story of how profitable a company is (or isn’t).

If you would like to learn more about EBITDA, give us a call or write to us. TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.

Like a river flows on, so should your company’s cash.  While there are multiple ideas on the source of the term, the fact remains it all has to do with money (payments) coming into and out of your enterprise.

It is the net amount of cash an enterprise receives and disperses during a given period of time.

So, why should I care about cash flow? It really is the picture of how well a company manages its cash.  That is, paying its debt as well as funding operations. A cash flow statement is a complement to the balance sheet and the income statement.

In other words, cash flow is a component of the self portrait of your company’s financial health. Cash flow is about value and liquidity.

If you need or want to tell a clear picture of your company and its financial health, you need to know its cash flow.

The cash in cash flow comes from three activities:

• Operating
• Investing
• Financing

Operating cash is that which is spent on the day-to-day operation of the company.   It comes from sales of the company’s goods and services.  It also reflects where that cash is going for things like rent, salaries, supplier expenses and taxes.

Cash from investment activities includes the sale or purchase of a fixed asset, loans paid to others or payments made into investment vehicles.

Financing activities cash includes that from banks and investors as well as payments made to investors.

The bottom line on cash flow is just that: the bottom line.  It is a valuable measure of the strength, profitability and long-term future of the company.

Understanding cash flow is key to understanding and plotting out a strategy for your company.

For more on cash flow, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.

Yes, you do.  If you are running your business on the fly without a plan and just spending what comes in, you aren’t do yourself any favors.

Would you build a house without knowing what you could afford to buy and then keep? No, I’m sure you wouldn’t.

Having a budget for your business is as simple as wanting to know your revenue and cash flow.  But there’s more– having a budget will help you in a number of areas, including:

• Improving your enterprise’s efficiency.
• Identifying funds for reinvestment.
• Predicting slow periods.
• Estimating profitability.
• Giving a view into the future.
• Helping you maintain control.

Like we’ve discussed in earlier posts, the more you know about the day-to-day operation of your company and being able to take its pulse at any given moment, the better chance you will have to grow and thrive.

Where should you start in creating a budget?  Consider these items as you begin to formulate your initial and on-going budget:

• Examine your revenue. Knowing your income will help you understand the strengths of your company.
• Subtract fixed costs. Rent, cost of goods sold, debt repayment, payroll depreciation, taxes and insurance to start.
• Determine variable expenses like your salary, utilities, marketing, equipment upgrades.
• Create a contingency fund. This will help you with emergencies.
• Create a profit and loss statement or a balance sheet.
• Outline a budget that looks ahead.

With these elements in hand you can start down the road of producing and managing a budget.  Don’t be a stranger to your company’s operating profile.

For more on how to develop and implement an overall financial strategy, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.

The TFO Team