Authored by our partner, Accountfully
It’s no secret that accountants love details, especially when it comes to accounting for inventory. A good accounting team that specializes in inventory management will have a specific process to account for the cost of goods sold and support your cash flow planning. Knowing the cost of goods sold means better control of your margins as it relates to the product itself, to the additional costs associated with using multiple warehouses, and selling in each unique sales channel. Your accountant will also need to be able to sync the data across common apps like QuickBooks Online and various online sales platforms like Shopify, Amazon, and Faire.
So what is the best way to support your accountant’s requirements while also helping your organization to planahead and utilize finite COGS understanding as you scale?
Step one is implementing an inventory management system like Cin7 Core that tracks every cost. This gives business owners (and their accounting team) a clear view of the real cost of a product from component/ingredient to finished good. Cin7 Core shows quantities available and assists in planning orders to prevent stock outs. All of these are key areas that help you to stay on top of cash flow by planning for big purchases and predicting sales revenue. Let’s dive into the top five reasons your accountant appreciates your use of an inventory management system.
If you manufacture products that use multiple components to create the finished product – you will benefit from an inventory management system the most. Being able to outline the details of your inventory and understand the finite details that go into it will provide you with the ability to capitalize on margins and better understand various pieces involved in the management of your product sales. By knowing the details of each component of your product, you can assess where any cost savings can be applied and better understand when a restock is needed.
An inventory assembly lists all of the components that go into creating a finished product. For Example, a company that makes granola bars will need to define and track all of the ingredients required to produce a finished product granola bar. By tracking ingredients, this granola bar company can better plan out what components will need to be ordered, and in what quantities, to meet demand. Cin7 Core shows this pivotal data and allows you to have the visibility required to understand your inventory assemblies.
It is a good idea to be meticulous when it comes to inventory accounting because it gives you an accurate representation of what goes into your product’s success. You need to know your gross profit margin and the cost of goods sold. To accurately calculate these metrics you must be meticulous in your bookkeeping. The more manual inputs required to drill down into the details, the more chance for error or inaccuracies, not to mention the time spent on this effort. Using an inventory management system, like Cin7 Core reduces the likelihood of mistakes associated with manual input.
The definition of “Landed cost” is the total cost of a product on its journey from the factory floor to your buyer’s door. It includes the cost to purchase or manufacture the product itself, shipment costs, insurance fees, customs, duties, and any other charges incurred along the way. Depending on how long and complex that journey is for your product, the higher the cost and the potential to affect margins. Having an accurate and detailed view of your landed cost as part of your overall COGS reporting is invaluable to understanding your true margins and if, perhaps, there is a way to lower these costs. The first step is to identify them, which is where Cin7 Core puts you ahead of the game.
When overseeing inventory across multiple locations, it is important to understand the quantities of each product and where they are housed. If you don’t know how much exists, and where, it makes it harder to manage restocking and shipping. Cin7’s ability to show your controlling locations means better visibility over when it is time to restock and better shipping efficiencies when supporting orders that are closest to various warehouse locations. Plus, keeping tabs on your inventory quantities will support cash flow management, by being able to time restocks and plan for big cash outlays.
Running an inventory-based company should not be a guessing game. You and more importantly, your accountant will appreciate the ability to dive in deeper to the details. The best way to do this efficiently is by implementing the right tools, like Cin7 early, which show the intricacies of your COGS and will sync with your accounting software. Using an inventory management system, matched with a skilled inventory accounting team will do the heavy lifting for you. Knowing these details will help you make cost-saving decisions confidently and stay current on opportunities for cost savings and business growth. Happy accountant, happy business!
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