21 Oct Inventory Management is Especially Important this Year
As year-end draws near, many businesses will be not only be generating their fourth quarter financial statements but also looking back on the entire year’s financials. And what a year it has been. The COVID-19 pandemic and resulting economic fallout have likely affected your sales and expenses, and you have probably noticed the impact on both. However, do not overlook the importance of inventory management and its impact on your financial statements.
Cut Back as Necessary
Carrying too much inventory can reflect poorly on a business as the value of surplus items drops throughout the year. In turn, your financial statements will not look as good as they could if they report a substantial amount of unsold goods.
Taking stock and perhaps cutting back on excess inventory reduces interest and storage costs. Doing so also improves your ability to detect fraud and theft. Yet another benefit is that, if you conduct inventory checks regularly, your processes should evolve over time — increasing your capacity to track what is in stock, what is selling and what is not.
One improvement to perhaps budget for here: upgraded inventory tracking and ordering software. Newer applications can help you better forecast demand, minimize overstocking, and share data with suppliers to improve accuracy and efficiency.
Make Tough Decisions
If yours is a more service-oriented business, you can apply a similar approach. Check into whether you are ‘overstocking’ on services that just are not adding enough revenue to the bottom line anymore. Keeping infrastructure and, yes, even employees in place that are not contributing to profitability is much like leaving items on the shelves that are not selling.
Making improvements may require some tough calls. Sadly, this probably would not be the first time you have had to make difficult decisions in recent months. Many business owners have had to lay off or furlough employees and substantively alter how they deliver their products or services during the COVID-19 crisis.
You might have long-time customers to whom you provide certain services that just are not profitable anymore. If your company might start losing money on these customers, you may have to discontinue the services and sacrifice their business.
You can ease difficult transitions like this by referring customers to another, reputable service provider. Meanwhile, your business should be looking to either find new service areas to generate revenue or expand existing services to more robust market segments.
Take a Hard Look
Currently, the economy appears to be slowly recovering for most (though not all) industries. An environment like this means every dollar is precious and any type of waste or redundancy is even more dangerous.
Take a hard look at your approach to inventory management, or how you are managing the services you provide, to make sure you are in accordance with the times. We can help your business implement cost-effective inventory tracking processes, as well as assist you in gaining key insights from your financial statements.