Whether your products are secondary to your services or the focus of your business, having an inventory control system is key to your profitability.
There are many ways to track your inventory, this is my go-to method.
I keep a 3-ring binder at the sales counter with alphabet dividers inside. I use 5 column 3-hole punched paper. At the top I put the Company information (where I buy products from) including their physical/mailing address, email, website for ordering (if they have one) and the sales rep. I also write the terms (net 30/Cash/Credit Card) we have established.
If you used an 8-column sheet you can use columns #5, 6, 7, & 8 for quarterly reset count. This is very helpful your first few years in business. You’ll have a better sense of when those items sell, which may lead to buying more at wholesale. This increase might save you some per item (quantity buying). And every decrease in expenses gives you an increase in profit.
At years’ end, you take your last quarter inventory. Then multiply the value of each item at wholesale, and you’ll have your cost of goods sold for tax purposes.
Know Your Numbers
As you grow, this system may be time consuming. A digital POS (Point of Sale) can save you many hours, but you need to be large enough to justify the expense. A friend once went to a trade show for his niche. He considered buying a machine that would double his production. It would also double the volume of materials needed to produce his products, increase his costs while paying off the cost of the machine. There was uncertainty that such an increased volume would result in the necessary volume of sales. As much as he had hoped to automate, it was not in his best interest to do so. He knew how much additional inventory was required to make it profitable, but there was too much risk involved to be certain about the outcome.
If this simple inventory system is too complicated for your business, modify it. Make it work for you.
Inventory Your Service Hours
If you have a service-based business, be sure you track the number of hours you spend on each customers’ project.
Treat those hours as products and inventory them the best you can. You’ll have the numbers you need to bid on future projects. As you grow and have the need for employees, you’ll know how many projects it will take to support that new hire. And you’ll know if you are ready to add employees.
Part of know your numbers is having a pricing strategy. We’ll look at your options next week.
Until then - - -