Accountants, Inventory Management Is Everyone’s Job!
5 things you should be doing to promote your company’s profitability
If you work for a retail or wholesale business, inventory is your biggest asset—and potentially your biggest liability. Knowing what you have in stock at any given time is essential to a healthy balance sheet and humming sales activity. When inventory levels aren’t optimized, you’re in danger of losing sales and customers due to stock-outs or spending too much to house excess inventory and slow-moving items. Overstock also ties up much-needed cash flow, which can strain relationships with suppliers and even your bank.
1. Use an inventory tracking system.
If you aren’t already tracking your inventory, you should! Whether you use paper documents, digital spreadsheets or specialized inventory management software, you need to know exactly what is where, at any and every moment. This includes raw materials, work in progress (WIP) and finished goods.
Ideally, your inventory management system should integrate with your accounting software.
Inventory and accounting have many overlapping transactions, including sales orders, purchase orders and invoices, so merging the two makes good business sense. Cloud-based inventory software allows access to real-time financial information free from the discrepancies that can creep in from manual data entry. Everyone will be on the same page, seeing the same data, anytime, anywhere. This in turn provides a clear, big-picture understanding of how the business is performing, enabling timely and informed decisions based on accurate inventory valuations.
2. Conduct regular stocktakes.
This dreaded but vital part of the equation entails the physical counting of all goods (raw materials, WIP and finished goods), reconciling any differences between your count and what’s recorded, and understanding why these differences are occurring, whether items were misplaced, mislabeled, stolen or never received. With a rudimentary inventory management system, you may have to check stock against multiple sources and spend even longer on this tedious task. For example, your stocktake may include inventory associated with open orders. And if you run a brick-and-mortar store, all POS transactions will need to be reviewed as well. The more places you have to look, the longer it takes. Inventory management software will help take some of the pain out of the process.
Pro tip: Rather than shut down your warehouse for days to do your stocktake, check inventory in one section each day. A barcode inventory management system will make data processing accurate and almost instantaneous.
3. Analyze past sales to plan for future inventory needs.
Do you know what your top sellers are? What about your slow movers? An effective inventory management system will tell you all that and more, helping you analyze your sales activity to optimize your inventory levels and avoid overstocking. Excess inventory is at risk of theft, damage, being marked down or even becoming obsolete. Money and space that could be better used elsewhere simply won’t be available. With that in mind, make time to regularly examine your sales trend data so that you can anticipate what you’ll need, how much and when.
4. Understand your gross profit margins.
Since cost of goods sold is a major expense on your P&L statement, get in the habit of reviewing your COGS as a percentage of product sales every month. Inventory management software will allow you to easily pull sales data to generate reports that show you exactly what your margins are and shed light on why certain products aren’t moving, informing smarter purchasing decisions.
5. Consider automation.
If you’re currently using Excel or some other manual process to track inventory, you’re wasting time and money that could be better spent growing your bottom line. Even worse, you’re likely introducing errors. Research shows that even a proficient data entry admin will make one error per 300 characters, and these errors only multiply the more people handle the data.
While they’re easy to understand and simple to use at the outset, spreadsheets will cost you in the long run, particularly as your business grows and your supply chain becomes more complex. Spreadsheets don’t work in real time or allow multiple users to access them at once, and checking for errors across a rapidly expanding sheet becomes almost impossible, as changes can’t be easily tracked. Data is therefore at risk of being overwritten and lost. An automated system, on the other hand, allows multiple people to track items across multiple locations and monitor orders and shipments for those items, all while eliminating data redundancy. Automated order workflows will feed costs, sales, purchases and credit notes directly to your accounting software and general ledger.
A cloud-based inventory management system like Cin7 offers all these benefits and more, reducing your reliance on multiple software and data sources while increasing operational efficiency. Cin7:
Stores large volumes of data, including numbers, text and images
Centralizes everything for easy, effective data management and reduced risk of error
Encourages best practices and simplifies business processes
Logs all changes and allows admins to limit user access
Lets users log in from anywhere in the world!
The new financial year is the perfect time to rethink your inventory management strategy. Implementing these tips is a solid place to start, but a cloud-based inventory management system like Cin7 could really take your retail or wholesale business to the next level. By streamlining daily processes, you’ll save time and money that can be better spent actively building your business for future success.
Guest post written by Anna Ngo - Cin7
For more information check out the Cin7 Website: