With the boost of businesses worldwide, entrepreneurs have to find a way to keep track of their cash flow and prevent their companies from sinking to the bottom after a massive number of competitors have emerged.
An inventory, for instance, has allowed them to create a systematic approach in handling their raw materials and finished goods. This includes sourcing, storing, and selling the products at the correct cost using some applications such as Sowingo.
How do you calculate an inventory?
To calculate your inventory, you first have to refer to your previous accounting records to determine the cost of goods sold.
The cost of goods sold pertains to producing the business’s products by adding labor and raw materials. For example, an entrepreneur named Chester has spent an amount of $3 to create his infamous scented candles. Throughout the process, he was able to make and sold 700 candles.
Multiply that with the cost for making each candle, and you’ll be able to calculate that Chester has a cost of goods sold of $2,100.
After determining this, you would have to multiply the $3 to the ending inventory stated in the previous accounting records. Let’s say that it was 430, and he produced 650 candles for this year, so it will give you an amount of $1,290 for ending inventory and a beginning inventory of $1,950.
The following step would require you to add the value of ending inventory and cost of goods sold, which gives you the value of $3,390, then subtract it with the beginning inventory that will bring you a current inventory value of $1,440.
Do you benefit from inventory management?
Doing inventory management helps a business owner to supervise the cash flow of the company. Particularly in identifying the available stocks on-hand, which will serve as a guide to the owners to determine the available goods to be sold and the number of stock replenished that they would have to buy to maintain the business cycle.
Aside from this, you coil have an accurate forecast of the stock levels of your company. This means that you would set a minimum level for storing stocks to ensure that you meet your market’s sales demand. By motoring inventories, the owner could reduce their expenses in the insurance, storage, and handling costs of the products. Thus, saving them thousands of dollars in the long run.
Moreover, a business owner is presenting themselves an opportunity to speculate the future demands for their goods to review the previous records and keep an eye on the emerging trends within the market, which could skyrocket their projected sales.
Meanwhile, a frequent inventory audit helps you check any discrepancies that might have even cost you more than hundreds of dollars! Additionally, you could oversee the supply chain management and address issues such as troubleshooting manufacturing problems, including reducing excessive production of inventory stock that has lost its demand.
Above all, inventory management gives a flexible flow of manufacturing to all types of businesses to respond to their customers’ demand and improve their performance by taking over the production schedule for efficient use and longevity of equipment or infrastructures.