Considering tracking inventory for your company? There are several things to consider before turning on Inventory in QBO and setting up Inventory Items.
You need to know exactly how many of each item you have on hand at any time and the dollar value of that inventory.
You and your team have the time available to do the regular data management work to keep the system accurate.
You do NOT need Inventory in order to:
Run reports of sales/income by item (dollar amounts or quantities)
Run reports of Profit and Loss by item (see net income for each item you buy and sell)
What does tracking inventory entail?
You will need to track every time you purchase in items by entering the quantities on bills or checks.
You will need to manage your item list regularly to make sure there are no duplicates, old unused items, or quantities going negative.
You will need to conduct regular physical counts of the inventory you have on hand, and enter adjustments for items lost, errors, etc.
Every time items are purchased by your customers, that will need to be entered into the system as well, either by hand or using an integration with your Point of Sale or website. Integrations always need people to manage them!
For many small businesses, the time it takes to track all inbound purchases/track all products manufactured is just not feasible. For example, consider a small business with no employees, selling baking supplies. The amount of time it would take for the owner to conduct regular cycle counts, enter bills for every single item purchase made (instead of just booking expenses to Cost of Goods Sold) and make sure that every item sold is tracked through inventory, is a large amount of work. The owner already has a good idea of how much stock they have on hand and what is running low. The benefit does not justify the time needed.
For larger businesses, tracking inventory is a necessity. For example a high-volume clothing company with an online store. If they do not track inventory, customers will purchase out-of-stock items on their website and they will have to issue many refunds, a time-consuming hassle leaving customers unhappy. They have tens or hundreds of thousands of dollars of inventory on hand at any time and need to be able to see that number as it fluctuates over time, for their budgeting and planning as they determine what items or categories of items to push in their advertising campaigns.
Sometimes a mix is the right way to go. A small medical practice might want to track inventory for certain medicines they have on site that are a high cost per item, but might not want to track inventory for all their small supplies - cotton balls, nitrile gloves, etc.
Not sure if you should start tracking inventory, or how to manage it? Already turned on Inventory but want to make sure you are using it correctly to get the best information for your business? Give us a call and we'll talk it over!