Components of a Bare-Bones Recordkeeping System

When we talk about setting up a recordkeeping system for your eBay business, we're talking about assembling and tracking some very bare-bones data. Let's look at each component of the recordkeeping system in detail.

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"[.dotmath]5" index cards. (I know; I used to work with a system like this.) Each card typically included the following information:

• Item name

• Item description

• Item model number (if appropriate)

• Item serial number (if appropriate)

• Cost of the item (sometimes called the cost of goods sold, or COGS)

• 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.

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 or spreadsheet 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 the entire 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 capability 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 19, "Automating Auction Management." The best of these tools will track both your inventory and your customer activity, all in a single package.

Customer Records

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

You can use Access or Excel 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 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

• Shipping cost

• Tracking information

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

Note

You can feed some of this customer information back to your inventory management systemwhich is why a lot of recordkeeping systems integrate the inventory and customer management functions. The date sold and sales price data, specifically, transfer directly to the same fields in your inventory management database. There's no point in entering the same information twice if you don't have to.

Once you have all this customer information stored, what do you do with it? First, it's good to have, just in casejust 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 wise to know who your good customers are; making additional sales to an existing customer costs less than acquiring 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, you'll need to hold onto certain items for tax purposesspecifically 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 itemsnot 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.

This 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? Here's a short list:

• 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 travellike all those trips to and from the post office)

Note

Want to learn more about setting up a small business accounting system? Then check out Accounting for Everyone (www.accountingforeveryone.com) or the Accounting section on the BusinessTown site (www.businesstown.com).