Components of a Bare-Bones Record-keeping System

     

Components of a Bare-Bones Record-keeping System

When we talk about setting up a record-keeping system for your eBay business, we're talking about assembling and tracking some very bare-bones data. We'll talk about each component of your record-keeping system in detail; you can use the following checklist to get a head start on what you'll need to track.

Record-keeping Checklist

Inventory records (quantity, date in, date out, cost, sales price)

Customer records ( name , address, email, payment type, what was purchased, and when)

Financial records (all business- related receipts and invoices)

Inventory Records

Setting up an inventory management system sounds like an extremely complex undertaking. It's really not. Just think of it in these simple terms:

You want to track when you got your stuff, how much it cost you, when you sold it, and how much you sold it for.

That's not rocket science.

In the old (pre-PC) days, many businesses tracked their inventory on 3"x5" index cards. (I know; I used to work with a system like this.) Each card included the information shown in the following checklist:

Inventory Management Checklist

Item name

Item description

Item model number (if appropriate)

Item serial number (if appropriate)

Cost of the item

Date the item was purchased

Date the item was sold

Final sales price of the item

The one bad thing about "the old days" was that we had to enter all this information by hand, and then manually add up the numbers on all the cards at the end of each month. Now that we all have personal computers, however, a lot of this manual work is automated.

Don't confuse the item cost with the sales price. The cost (also called the cost of goods sold , or COGS ) is what you pay for the item. The sales price is the price you sell it for, to your customer.

The simplest way to track your inventory on a PC is to use a database program, such as Microsoft Works Database or Microsoft Access. You can also use a spreadsheet program, such as Microsoft Excel, as a kind of simple database; Excel's database functions are good enough for most small business inventory management.

Just set up your database with fields for each of the items listed previously. Then create a new record for each item in inventory. Whenever you purchase new inventory, create new records. When you sell an item, mark the record for that item sold, and fill in the date sold and sales price fields.

At the end of each month, have your program run a report that lists the total cost of all the inventory you currently have in stock. You should also run a report showing all items sold, and calculating your total profit (sales price less cost of item) on these items. That should provide the basic inventory and sales information you need for your accounting system (discussed later in this chapter).

Once you get good at it, you can use your inventory management system to help you decide when to order more items for sale. Set a minimum quantity that you want to keep in stock, and program your database to alert you when the number of units on hand drops below this number. This is particularly useful when you're selling large quantities of each item, and when you have to purchase each item in quantity.

Another option for tracking the inventory of your eBay business is to use one of the advanced auction management tools offered by various third-party sites. These tools are discussed in more detail in Chapter 12, "Managing Your Auctions," and Chapter 20, "Using Professional Auction Tools." The best of these tools will track both your inventory and your customer activity, and include

• Auctionworks (www.auctionworks.com)

• ChannelAdvisor Pro (www. channeladvisor .com/solutions/pro.htm)

• eBay Selling Manager Pro (pages.ebay.com/selling_manager_pro/)

• Vendio's Sales Manager Pro (www. vendio .com)

Customer Records

Just as it's important to track what it is you sell, it's also important to track who it is that buys it. Establishing a customer management system not only lets you recall who you've sold to, it also lets you match up your customers with specific item purchases ”and possibly leverage that information for future sales.

Just as you can use Access or Excel to track your inventory, you can also use these programs to store your customer information. In addition, you can use eBay Selling Manager or most other auction management tools to track your customers and their sales activity.

What customer records should you keep? Here's a short list:

Customer Management Checklist

Customer name

Customer address (street, city, state, ZIP code)

Customer email address

Item number purchased

Item description

Price of item purchased

Date item listed for auction

Date auction closed

Date item paid for

Payment method

Date item shipped

Shipping method

In addition, you might find it useful to track all the communications you send to each customer. This way you'll know who've you contacted about payment and who might need a reminder email.

Once you have all this customer information stored, what do you do with it? First, it's good to have, just in case ”just in case a customer claims not to have received an item, or just in case a customer has a complaint and wants his or her money back. In addition, some sellers use their customer lists to solicit additional sales, mailing or emailing them when they have new merchandise available or a sale coming up. It's always good to know who your good customers are; it costs less to make additional sales to an existing customer than it does to acquire a completely new customer.

Financial Records

You can use the information stored in your inventory and customer management systems to help you prepare your ongoing financial records. In particular, you'll want to transfer the data relating to item cost, date sold, and sales price; this information will form the key lines on your monthly income statement.

You'll also need to track additional information relating to the costs of running your eBay business, and then use that information to perform your regular business accounting. In particular, there are certain items you'll need to hold onto for tax purposes ” specifically those little pieces of paper that document items you've purchased or sold. Even if your "system" consists of throwing all your receipts in an old shoebox or file folder, you need to hold onto all these items ”not only for your monthly accounting and end-of-year tax preparation, but also in case the IRS ever decides to audit you.

How long should you hold onto your original documentation? Some experts say to hold onto all your receipts and invoices for a minimum of three years , but that might not be long enough. For example, the IRS requires that you keep documentation on all your assets for the life of the asset. And if the IRS thinks you've filed a fraudulent return, there's no statute of limitations at all.

Which means you might want to hang onto this basic documentation forever . Just clear out a corner of your garage or attic where you can store all your shoeboxes, and be done with it.

What kind of hard-copy documentation should you be holding? Use the following checklist as a guideline:

Financial Records Checklist

Bank statements

Credit card statements

Receipts for all business-related purchases and expenses (including shipping expenses)

Invoices for all inventory purchases

Invoices or sales receipts for all items sold

Automobile mileage (keep a log for all business-related travel)