UK businesses set new record with £2.3bn in sales through Amazon15 Oct 2018
UK small businesses have had a record year on Amazon, with the online marketplace giant helping British sellers achieve record sales of £2.3bn for 2017.
Allowing even the smallest UK start-up to sell its goods to the global market, the total number of sales from British sellers on the site was up on 2016’s record of £1.8bn – with Amazon also announcing a new scheme to further boost world sales for domestic sellers.
Allowing small businesses to trade without language barriers, as well as offering global delivery and distribution, customer services in local languages and free product listing translations, 60% of all UK entrepreneurs on Amazon export abroad – with half of all Amazon’s total sales coming from independent businesses.
As a small business accountant, we acknowledge the opportunity a vast marketplace like Amazon can create. Therefore, we have taken the time to get up to speed on the process of creating and running an “Amazon business”, as well as maximising the profit margins of these companies.
Example of an Amazon business
One example of a unique UK start-up successfully selling on Amazon is the crowdfunded sensation, Sugru, which has created an innovative, all-purpose putty that can be used for everything from repairing broken toys to adding hooks to existing items, and many other purposes in between.
Launched in 2009 by Jane Ni Dhulchaointigh and based in East London, the start-up’s sales on Amazon’s marketplace have grown by more than 100% every year.
From launching their business in the UK, they have now expanded to sell through Amazon across seven countries, and now Amazon in the U.S. is their single, largest customer.
Amazon business loans
Not just providing a place for startups to sell, Amazon also provides finance to businesses in the form of Amazon Lending.
Offering loans for resident sellers from £700 to £500,000 for up to 12 months, with rates ranging from 6% to 17%, the company supplies funds from its own balance sheet within 24 hours and automatically deducts payments every two weeks from the customer’s account.
In the event of non-payment, Amazon freezes the merchant’s account.
Back in June 2017, it was revealed that 50% of all businesses that had taken out a loan via Amazon Lending had been able to secure a second loan.
Welcoming the news of increased British exports via Amazon, Liam Fox, the international trade secretary has previously said, “The growth in small business exports on sites such as Amazon shows what can be achieved, and I welcome the company’s commitments to help more small companies go digital so they can grow their businesses and create jobs up and down the country.”
Traditionally, consumers abroad would look towards their domestic market to consume goods.
With the rise of Amazon, these markets are now open to the UK retailer as well as domestic producers, although alongside the positives comes the obvious negative. This works both ways, and the UK Amazon seller will have to compete with like-minded individuals across the world to capture sales.
Similarly, the UK high street now has to compete with overseas Amazon sellers to attract the UK consumer. A boon for small businesses, but a hindrance for retail stalwarts across the world now facing fresh competition.
How economical is it to set up a shop?
As Amazon businesses can be set up with relative ease, and in the absence of risk, we have to question the economics of a modern day shop and why anyone would choose to set up a shop in the current retail environment.
The actual costs will vary based on the type of retail business you're starting, the location and the size of the store as well as many other factors. Every business is different and the first step in finding out what your store will cost to open is to have a solid plan and put it all down on paper.
To determine how much money you will need to start your business, it's best to put together a business plan.
What Are Your Start-Up Costs?
Your list of start-up costs should involve everything that you need to open the doors. Sit down and brainstorm every single cost, right down to the toilet paper for the bathroom, then start researching how much each item will cost.
Start-up costs include:
Store fixtures - shelving, display racks and cases, furniture, etc.
Equipment - cash registers, computers, time clocks, security cameras, etc.
Initial inventory to sell in the store on opening day.
Office supplies - paper, pens, schedule books, accounting software, etc.
Fees and permits through the city, state and federal governments.
Business insurance - liability and any coverage required for employees or yourself.
Advertising material - business cards, in-store and street signage, etc.
Professional services of accountants, lawyers, graphic designers, etc.
Building rental deposit, renovation and other necessary costs associated with the retail space.
Janitorial supplies - those needed to clean the store initially and maintain it after opening.
What Are Your Operating Expenses?
You will need to cover the operating expenses until your business reaches its break-even point. It is important to remember that your business will not be profitable in the first several months and it may even take years.
You need to keep the lights on, pay employees and cover every other expense until you hit that magic number your break-even analysis points to. This is when you project that your monthly profit from sales will be able to cover your store's monthly expenses.
Monthly expenses include rent, phone, wages, utilities, taxes, advertising, inventory, insurance and anything else required to operate your business on a daily basis.
If you are an entrepreneur whose full time job is to manage the shop, then you will most likely want to pay yourself a salary, too. Don't forget to include this cost.
The truth is, you should only pay yourself if you are physically working in the store. There is rarely enough money in a retail startup to pay the manager and the owner.
Overall, when the pros and cons are weighed up, the type of retail store you should set up swings wildly towards Amazon.
Speak with our London accountants today and see how we can use our vast experience and knowledge to help you make the most of your new venture.