How to structure your amazon FBA company

Working for a software company with a multichannel ecommerce operations platform, I see many ecommerce businesses increase their profit margins by leveraging Fulfillment by Amazon — both new sellers and existing retailers. Fulfillment by Amazon (FBA) is a great way for many people to find their niche in online sales and marketing on the Amazon Marketplace and other channels.

Everyone knows that Amazon works with third-party sellers, but did you know that in 2020, nearly half of all Amazon sales came from third-party sellers and not Amazon directly? Not only that, but about 2/3 of those sellers are using the FBA platform. What some people don’t realize is that just about anyone can sell something on Amazon, provided they know where and how to do so.

Currently, more than two million people around the world are doing it, and now it’s up to you to decide if it’s the right path for your business. And FBA works not just in the United States, but in many countries worldwide including Australia. This guide will cover the major points you need to know and how to set your company up with Company123!

What is Amazon FBA?

Fulfillment by Amazon is a service offered by — you guessed it — Amazon, as a means for third-party sellers to automate their order fulfillment and shipping services. It’s a pretty simple concept: Sellers sell, Amazon ships.

Anyone enrolled in Amazon FBA can let Amazon handle all shipping, including returns and refunds, as well as product warehousing in Amazon’s warehouses, picking and packing, and more.

Sellers send their products to Amazon, who warehouses everything and then processes all of the orders as they come in. As long as you handle the sales and make sure Amazon stays stocked with your products, the rest is done for you.

And yes, you have to pay Amazon fees for it. Of course you do. So, what do you get for the money?
•    24/7 Amazon customer service
•    All fulfillment and shipping costs included (pick, pack and ship)
•    Access to one of the world’s most dynamic fulfillment networks

Most people are familiar with the fact that Amazon is a giant in the online retail and fulfillment space. COVID-19 and the resulting pandemic has only served to increase the use of the Amazon platform, which has over 300 million active customer accounts around the world.

Bear in mind that FBA might not be ideal for low-value items, large dimension products or other circumstances. While it offers a lot, it’s not a guaranteed solution for every seller. How can you decide? That’s why we’re here.

Let’s take a quick look at the history and evolution of this platform, and then we’ll dig into the features, pros and cons, and more.

The Evolution of FBA 

Amazon started its FBA program in 2006, but the company has been paving the way for online retail for years. The brand had been dominating the world of online sales and fulfillment, despite its modest beginnings in the 1990s, and saw an opportunity to help others do the same. Of course, it’s not entirely a valiant effort on the part of Amazon, since they’re making money from their FBA service, too.

Amazon decided that it would like to help small businesses benefit from its own fulfillment capabilities and leading customer service infrastructure. Essentially, the brand wanted to share its business model with others and help third-party sellers learn how to profit big by doing things the “Amazon Way”.

The FBA program, like Amazon itself, is constantly evolving and changing to meet the needs of the evolving consumer landscape and online retail environment. This is both a blessing and a curse for those enrolled. It will be easy to stay updated with the current trends and market demands, but it can also be difficult to keep up with the constant changes and updates to the process, the guidelines, and other aspects of the program.

Fortunately, in this guide, we’ll cover all the details about the Amazon FBA program, including the future potential it has, to help you decide on your next move. 

The Newest Changes and Features of Amazon FBA

Fulfillment by Amazon is constantly changing and adapting to meet the needs of both its customers and the sellers that are using the platform. Keeping up to date with the latest changes and additions can help brands meet consumer demand and stay at the top of their own game with the FBA service.

For example, one big change in 2020 is the added commingling of inventory, which is permitted if Amazon barcodes are used.

What is commingling?

It’s when Amazon stores every unit of a single product together, regardless of the seller, and ships any one of these to a buyer. It’s also called stickerless inventory.

This has its own pros and cons, but it can possibly end up in counterfeits being shipped to your customer instead of the high-quality unit you placed in Amazon’s warehouses (since the products are picked from any available stock — including stock provided by someone other than you) or create other issues. So, you’ll want to keep an eye on things if you take advantage of this feature. Some instances have occurred where legitimate sellers using FBA have been banned from selling on Amazon due to negative reviews caused by damaged or fake products.

Another new change as of August 2020 is the Inventory Performance Index, which measures a variety of elements to determine how your inventory is performing and help you improve that by getting rid of excess inventory, improving your sell-through rate, and more. You’ll want a score above 500, which is calculated based on factors like:
•    In-stock inventory
•    Excess inventory
•    Stranded inventory
•    Sell-through rates

Amazon has ASIN level quantity limits to help ensure that sellers have a variety of products, and the new inventory performance dashboard makes it easy to monitor everything. You can track your inventory activity, keep an eye on your IPI score, and even get advice and tips on how to make better use of your inventory from Amazon itself.

Amazon is always changing and updating the FBA program. Fortunately, they’ve got a communicative system that notifies sellers of new changes and features as they are offered. The biggest issue here is staying up to date and making necessary changes as they come down the channels. 

The Costs of FBA 

Here’s the part everyone always wants to jump to — the cost. It’s going to cost money, but it doesn’t have to be a small fortune. For starters, think about things like how Amazon charges fees — in storage, items are charged based on size and weight, not cost. For you, that means selling low-dollar items through FBA could cost more than it’s worth. Be deliberate in choosing what you do and don’t list through the FBA platform.

You pay storage fees and fulfillment fees with the Amazon FBA program. The more inventory you have stored, the more it’s going to cost you. Amazon also has this nifty thing where your costs go up for items that are stored for longer than 180 days, encouraging people to get and keep products moving.

In addition, Amazon tracks items that are in storage at an Amazon warehouse but are not listed for sale, or stranded inventory. Stranded inventory costs you money, but Amazon helps by providing a stranded inventory report.

You can find settlement fee reports in your reporting section of the FBA dashboard, which will allow you to see what kind of fees you’re actually paying to Amazon as a part of this program. Remember, too, that because of peak holiday demand, you’ll pay higher storage fees to warehouse your inventory during the holiday season than the rest of the year. This is the time to double-check your FBA listings and remove anything that won’t sell, so it’s not just sitting and costing you money.

Yes, there are a few different costs involved with FBA, and there are some other factors related to pricing to consider. However, Amazon generally does well to provide useful information and assistance to ensure transparency as much as possible.

Company Tax

While personal income can be taxed up to 45%, companies in Australia pay a flat tax rate of 25%.

What are the requirements for company registration in Australia?
Step 1: fill in a company registration form at Company123
Step 2: receive all company documents within minutes, sign and file
Step 3: Recieve ABN, TFN and GST registration (if necessary) and begin operations
Benefits of Registering a Company?

In Australia, the most common types of company are:
    'Proprietary Limited' companies (cannot raise money from the general public through share issues)
    'Public' Companies (usually formed to raise or borrow public money by listing the company's shares for trading on a stock exchange)

All companies are governed by the Australian Securities and Investments Commission (ASIC), which administers the Corporations Act 2001 (Commonwealth) and other legislation. Public companies must also comply with the rules of the Australian Stock Exchange.

Advantages of a company include that:
•    Liability for shareholders is limited. As a general rule company carries legal and commercial risk as a separate legal entity which is seperate entity to the shareholders / directors that control the company.
•    It's easy to transfer ownership by selling shares to another party. Simple transfer forms can be completed to transfer the company shares to a new shareholder.
•    Shareholders (often family members) can be employed by the company with flexible income tax rules on distribution of income. Enjoy the use of tax credits company pays which may be passed on to shareholders (i.e no double taxation on company profits in the hands of shareholders in most cases)
•    The company can trade anywhere in Australia. A Private company can also trade in Overseas jurisdictions. Please consult your tax professional for additional tax advise.
•    Taxation rates can be more favourable then personal individual tax rates. Private companies currently enjoy a flat 27.5% tax rate where annual turn over of a company is less than $50m.
•    Enjoy access to Research & Development and Export Development Grant concessions which are generally available only to PTY LTD companies (not sole traders).

Disadvantages of a company include that:
•    The company can cost more to establish, maintain and wind up then a sole trader business
•    The reporting requirements can be more complex, however the general advantages of a company often outweigh the additional compliance fees associated in running a company
•    Your financial affairs of the company are governed by ASIC and information about directors and shareholders can be viewed by public.
•    if directors fail to meet their legal obligations, they may be held personally liable for the company's debts including profits distributed to shareholders are taxable. However tax credit that company pays may be available to the shareholders.

Setting a private company is east. Visit www.company123.com.au website where you will find useful links and information to register a company in under 5 minutes. Company123 offers simple all inclusive solution whether you a business owner setting up a business or you run an accountancy or legal practice and set up companies for Clients. Our support line is open 24/7 if you have any questions and we are always here to help and assist you with any of your questions.

What information is needed to register a company online?

For online registration, you will need to provide the following information:

For Directors & Secretaries: Full name, full residential address as well as the date and place of birth of each person

For Shareholders: Full name, address and number of shares for each shareholder of the company.

General Information: The address of the registered office and principal place of business.

You must get written consent from the people that will fill these roles:
•    Director (must be over 18)
•    Secretary (must be over 18)
•    Member (every company must have at least one member).

The second type of taxes you face in Australia is sales taxes or GST (Goods and Service Tax). You include this tax in your products’ prices to collect and pass them to the government.

Luckily, Australian tax system is not so complicated as it’s in the USA or Canada. So you don’t have to scratch your head calculating the amount of GST you need to charge. It doesn’t vary depending on the state and stands at 10% regardless of the city your Australian customers are from.

Moreover, you can put off dealing with your sales taxes and focus on growing your Amazon FBA business. Australian entrepreneurs don’t have to register for GST and collect it until their revenue reaches $75,000 in 12 months.

To find more comprehensive information on Australian tax regulations, you should visit the Australian Taxation Office’s website.

Set up a business bank account

The next step is to set up a business bank account. If you are starting out as a sole trader and don’t have any employees, it is best to open an ABN ‘sole trader’ account with an Australian bank or financial institution. You can also do this by registering with an online service provider like MYOB or Xero who will help manage your bookkeeping, but these services are more expensive than opening a full-fledged business account.

Once you have decided which type of account you want to open, go through the usual process: provide your business name and ABN (Australian Business Number), along with other information needed for setting up an account such as contact details and proof of identity documents (if applicable).

You can obtain an ABN as a sole trader through our website. It’s a quick and easy form that will get your ABN to you within 5 minutes.

If you’re thinking of registering an ABN for your company, you can do that as well through our website.

Write a business plan

A business plan is a document that describes your business. It should include:

•    Your business plan. This will describe how you’re going to build and run your company, including what products or services you'll offer, how much money you need to start up and grow, who will be part of the team and how any profits will be distributed.
•    Financial forecasts. You must make sure that the financial projections are realistic and achievable, otherwise this can lead to failure later down the track. Remember that there's no such thing as ‘pie in the sky’ when it comes to running a successful online store; if people don't buy something in enough numbers then there won't be any profit at all! So make sure that whatever figures are included in this section reflect reality rather than fantasy - otherwise they'll come back around to bite later on down the line when things start falling apart just because they weren't realistic enough!

You can purchase a business plan through our Company123 website. This service provides you with all the necessary components and strategy in creating your own business and our experts will help you with that initial set up process.

Business Names – What you need to know

When do I need a Business name?

If you would like to operate and trade under a name which is different to the name of the legal entity.

For example, Jacob Mowing services PTY LTD for a company or Jacob Smith as a sole trader, you require a business name.

If instead you would want to operate simply as Jacob Mowing services, you need to have that name registered.

What is a legal name and how is it different from a Business name?

While a business name is mainly used to conduct a business. The legal name of an entity is the name that appears on all official documents and legal papers. If you have a private company, the legal name typically will have PTY LTD (or any variation of ‘proprietary limited’). If you have registered as a sole trader your full name that was registered with the ABN will be the name of the legal entity.

How many business names can I have?

You can have multiple business names under a single Australian Business Number (ABN). Having multiple business names can help customers and clients find, identify, and connect with your business.

Be clear about your legal structures and requirements

As a business owner, you need to understand the difference between an ABN, ACN and company rate. These are all legal structures that will affect your tax obligations. A GST (Goods and Services Tax) ABN is required if you’re selling online or in-store and can be obtained from the Australian Taxation Office (ATO). An ACN (Australian Company Number) is needed by any business that wants to open an account with a financial institution so they can accept credit cards or electronic transfers of funds—this includes PayPal accounts as well as bank accounts.

The company rate allows businesses with only one owner who isn't multiple companies under one name to file their taxes based on an estimated percentage of revenue instead of actual sales figures; this might be useful for drop shippers if they don't want their competitors knowing how much business they're doing! Finally there's sole traders and partnerships—these are types of businesses where two or more people work together but don't form their own separate entity like corporations do (so there's no "company" at all!).

Discuss with an accountant to get tax and GST advice

It is essential to discuss with an accountant before setting up a drop shipping business.

As an accountant, your experience and expertise will be beneficial in ensuring that you have the best possible setup for your business. An accountant can help you with:
•    Your GST return
•    Your tax return
•    Financial statements
•    Business plan and cash flow

Book a tax and legal consultation with us today to help you through these difficult questions. Our tax expert is a chartered accountant with over 20 years of local and international tax experience and our legal expert is a professional lawyer of over 30 years of experience in commercial law.