There are a lot of moving parts to inventory, making it a big deal especially in the world of e-commerce.
If you don't have inventory, you don't have sales. You have to keep your eyes on your inventory levels so you don’t run out of it and in order to maximize sales.
You also need to understand not only the financial and operational pieces of it but what it means to your growth and scalability as well.
At Bottom Line CPA, we believe that what your bottom line says is more important than what your top line says. However, many entrepreneurs only think about their top-line growth.
Another good reason to understand your inventory is that it helps you understand what you need to order. This gives you some power to renegotiate costs with your vendors.
Elements to consider in an inventory:
- Operation
- Financial
- Tech space
- Cash flow
Get On That Balance Sheet!
There are many different ways to track your inventory. Your income statement isn't necessarily meaningful if you're not tracking your inventory on your balance sheet. You have to separate the inventory on your balance sheet and figure out what you still have on hand at the end of the month. This allows you to determine your profitability on your income statement and the costs related to the sales for that month.
Basically, the balance sheet reveals the overall health of your organization. It can take a while to get it back to great health because you've likely made a lot of decisions along the way. However, you will get there eventually.
When to Start Prioritizing Your Inventory
Ultimately, your net income is driven by your inventory. Therefore, at some point, you need to be in a mindset where inventory is a priority.
When you start to sell on different channels, you need to start prioritizing your inventory as well. At that point, you should start looking for the inventory solution that best fits your business.
Truthfully, though, inventory should always be a big priority and something that you make a point to wade through. You’ll probably never have a perfect inventory but you’ve got to at least find the inventory solution that best fits your business.
If you want to learn more about Inventory & Operational Expectations in 2021, check out Episode 064: Inventory & Operational Expectations In 2021.
