Inventory Management: 10 Areas that can Make or Break Your Business — Part I
We thought we’d try something a bit different this time. Instead of asking you to find time out of your very full day and ask you to read a lengthy white paper, we decided to give this white paper to you in pieces. There are 10 parts to this information on Inventory Management. We plan to issue at least 1 part each week, maybe 2. Obviously if you’d simply like to read this in full all you need do is click here and there it is in its entirety. But let’s start our discussion right now on what we feel you should think about when looking how to control your inventory and management of it.
Inventory generally represents a large portion of your assets, if not the largest. If your business handles any inventory or is largely made up of purchasing and selling items, then the abilities within your Inventory Management system can effectively make or break your business. In a retail environment a business must purchase, store, and then sell items to customers. In a distribution or wholesale situation it is possible most of your inventory never even crosses your hands because it is drop shipped or managed in such a way that it doesn’t require housing. In a manufacturing environment your inventory may only consist of the items you purchase as raw materials.
In a competitive industry such as retail, the goal is to maximize profit while minimizing the amount invested in inventory. Therefore if your bottom line is based on calculated inventory valuations, then sound inventory management could dramatically impact where your business really is financially versus the numbers you might be estimating for your inventory levels. Following is the first of 10 strategies to good inventory management that would help your business become or remain profitable.
Part I: What is the Value of Your Inventory — Right Now?
To have access to the value of your inventory at any point gives your business the ability to effectively plan and assess your financial position. In some cases a business’ setup has the ability to reconcile the value of inventory on a regular basis, otherwise a physical count is required for complete accuracy. Regardless the cost of your inventory is the foundation to profitability for your company.
Obviously there are dozens of business-operating expenses, but knowing the value of your inventory is critical for determining your pricing and profitability. Without an Inventory Management System your best guess would be to review your inventory account balance. However the problem with this option is it may not accurately reflect items that are in inventory but not yet recorded in the books. For example, you may have received or sold items that have not been invoiced and therefore not yet recorded. What is needed is an Inventory Management system that provides you with inventory costing method options, such as LIFO, FIFO, weighted cost and standard cost. Depending on which cost method you use will directly impact your balance sheet, income statement and cash flow in different ways and it is important to understand what they are.
View a sample report: General Ledger/Income Statement Report
Read “10 ways Inventory Management Can Make or Break You” in its entirety.
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