Managing Inventory for Profitability
by Ellen DePasquale
You don't have to pay an arm and a leg to gain control of stock levels, pricing and cash flow.
Any business that manages inventory lives and dies by stock levels. Knowing how much is on hand is important and easy to obtain with a physical inventory count. But knowing what items are selling fastest, how long it takes to receive new stock, and what sales are seasonal is crucial information that is more difficult to acquire.
Accounting software that includes an inventory module is the first step in gaining greater control of item stock levels, as well as profitable pricing and cash flow management. The good news is that you don't have to pay an arm and a leg to for an inventory system. Low-end software, such as QuickBooks Premium, QuickBooks Pro, Peachtree by Sage Pro Accounting, MYOB Premier Accounting Small Business Suite and MYOB AccountEdge all offer inventory management functionality.
"There were times when I was sold out, but over the course of the three years I have learned. Now we are at a point where we are almost never out of stock on an item when someone wants to order it," declares Pauline Lewis, owner of oovoo design, a handbag manufacturer based in Alexandria, VA. Lewis uses QuickBooks Premier to manage her line of handbags.
As great as this sounds, Lewis admits it took time to get to this point. She started, as most new businesses do, by trial and error. At first she set QuickBooks to alert her whenever any of her items reached an inventory level of five. Over time she identified two mistakes with that setup. The first was that waiting to be alerted until stock levels reached five was causing them to run out of stock before they could receive more, and the second was setting the alert at the stock level of five for all her items based on the assumption that all her items would sell similarly. She has modified the QuickBooks stock level alerts to be more synonymous with the individual items and how they are selling reducing her chances of running out prior to restocking.
These changes rely on the stock levels in QuickBooks always being up-to-date. To accomplish this, she makes sure that data entry occurs for customer invoices when the orders are placed, and, for vendor bills, when items are received. Both of these actions instantly update inventory and keep all her levels current. Additionally, she took advantage of the ability to create customized reports arriving at ones that are meaningful to her business.
Utilizing custom reports can help any business owner better understand the uniqueness of their business. In many cases it only takes a few small changes to a built-in report that allows it to present additional information that can make the difference between an educated decision and on based on assumptions.
"Every month I run a customized report on sales to see which items are selling the most. From there I make my purchasing decisions so I don’t spend money on items that are not moving. I may also increase their reorder limits of the popular items for the period that they continue to sell," says Lewis. She also mentions that as a result of this report she has moved some of my items to restock when their levels reach 30.
Lewis also runs customer reports that help her identify her top 20 to 30 customers for that month and the items they purchased. She has many wholesale customers and these reports help her identify their buying behavior and patterns. By analyzing these reports she has been able to increase her level of customer service by almost always having the items they want in stock and by making recommendations for new products based on what they have bought in the past.
Accounting software is much more than a program that prints checks and issues invoices. It is a great business management tool that has helped Lewis decide when to spend money, which products to buy, and how to service her clients in personalized ways.
Ellen DePasquale, Her articles have been published in many national business publications including Inc. Technology and she was contributing editor at Small Business Computing and Communications and Computer Currents. She has also written for financial trade publications including The CPA Magazine, Accounting Today, Accounting Technology, CPA Software News, and The CPA Journal.