How to Prepare Ecommerce Books for a Sale or Raise

A buyer or investor will price your ecommerce business off a monthly, accrual-basis P&L with cost of goods sold calculated per unit, marketplace fees broken out by type, and an inventory balance that ties to a physical count. If your books are cash-basis with one “Amazon fees” line and an inventory number nobody has reconciled since the last tax return, expect the diligence team to rebuild them for you over several weeks and to discount the price for what it finds. Preparing the books yourself takes 60 to 90 days of focused work. Do it in this order.

Step 1: Move to accrual and stay there

Most small sellers file cash-basis because it is simpler. A buyer will not accept cash-basis books because inventory purchases distort the timing of profit. IRS Publication 538 says that if an inventory is necessary to account for your income, you must use an accrual method for purchases and sales, with a small business taxpayer exception for average gross receipts of $26 million or less (indexed for inflation). Even if you qualify for the exception on your return, diligence will want accrual books. Convert at least 24 months, ideally 36.

The conversion has three moving parts: recognize revenue on order date rather than deposit date, recognize COGS when the unit ships rather than when the supplier is paid, and carry inventory on the balance sheet at cost. Everything else in this list depends on that being done first.

Step 2: Rebuild COGS per unit

“COGS equals what we paid suppliers this month” is the most common error in seller books and the one buyers catch first. COGS is the landed cost of the units that sold, under a consistent method (FIFO is the usual choice). Landed cost means supplier price plus inbound freight plus duties plus any prep, allocated per unit.

Worked example. A seller buys 5,000 units in January at $4.20 each with $3,500 of freight and $1,200 of duties, so landed cost is $5.14 per unit. In February the next 5,000 land at $4.60 plus $4,100 freight plus $1,300 duties, or $5.68. If 6,000 units sell in March, FIFO COGS is 5,000 at $5.14 plus 1,000 at $5.68, or $31,380, not the $28,400 the seller paid suppliers in March. Over a year those differences compound into a margin number that is either defensible or not.

Step 3: Break out every marketplace fee by type

A buyer models the business by channel and by fee line, because fee changes are the main way margin moves. Split Amazon into referral fees, FBA fulfillment, storage, inbound placement, penalty fees (low inventory, long-term storage), advertising, refunds and promotional discounts. Do the same for Shopify (payment processing, apps, shipping), Walmart, TikTok Shop and eBay. Amazon’s settlement report documentation lists the amount-type and amount-description fields you need; the data is in the file already.

Software that syncs settlements into the ledger by fee type does this for you. ConnectBooks, for instance, reconciles Amazon, Shopify, Walmart, TikTok Shop and eBay settlements into QuickBooks or Xero with SKU-level P&L and automated COGS, which is the shape of output a buyer wants to see. Whatever tool you use, the test is whether each fee type has its own line and whether the sum reconciles to the deposit.

Step 4: Reconcile every settlement to the bank

For each settlement period: gross sales minus refunds minus fees minus reserves equals the deposit, to the penny. Do this for every channel for the full period you are presenting. A diligence team will sample settlements at random and check them against the bank; if two out of ten do not tie, the whole P&L becomes suspect.

This step also surfaces the reserves and reimbursements that sellers routinely miscategorize. Amazon reimbursements for lost or damaged inventory are not revenue. Reserves held back are receivables, not lost money. Get them in the right accounts.

Step 5: Clean the balance sheet

Count the inventory. All of it: your warehouse, your 3PL, FBA (use the FBA inventory report), units in transit. Value it at landed cost under your chosen method. Compare to the general ledger and book the adjustment, then write down what caused the gap, because the buyer will ask.

Then work through the rest: accounts receivable should be marketplace reserves and any wholesale invoices, nothing older than 90 days without an explanation. Accounts payable should be real supplier balances. Flag owner draws, personal expenses and related-party transactions now so you can add them back with documentation later.

Step 6: Build the monthly P&L a buyer expects

Thirty-six months, by month, by channel. Lines: gross sales, refunds, net sales, COGS (landed), gross profit, then variable costs by fee type, contribution margin, then fixed costs, then EBITDA. Present margins as percentages beside the dollars. A buyer’s first question is whether contribution margin is stable, rising or falling over 36 months, and the second is why, so have the SKU-level detail behind the channel totals ready.

Using the worked example: if March net sales were $168,000 on 6,000 units, COGS of $31,380 gives a gross margin of 81.3 percent before fees. After referral, fulfillment, storage, placement, returns and advertising, contribution might land around 26 percent. The buyer is not evaluating the 81 percent. They are evaluating the 26, and whether it was 30 a year ago.

Step 7: Document the add-backs and the tax position

Add-backs are owner compensation above market, one-time expenses, and personal costs run through the business. Each one needs a source document. Unsupported add-backs are the first thing a buyer strikes.

On tax, marketplace facilitator rules mean the platforms collect and remit most sales tax, but your books should show marketplace-collected tax separately from anything you self-collect. Form 1099-K reporting, per the IRS, is on gross payments, so the 1099-K total will exceed your net sales, and you should be able to reconcile the two on request. This is not tax advice; get a CPA to review the position before the data room opens.

What to hand over

A 36-month accrual P&L by channel with monthly detail; a balance sheet with a reconciled inventory count and supporting schedules; settlement-to-bank reconciliations for every channel; SKU-level margin reports; a documented add-back schedule; and the last three years of returns. The SBA’s business management guidance covers the general shape of closing or selling a business. The specific shape for an ecommerce seller is the list above, and it is the difference between a two-week diligence and a two-month one.