Earlier this week Monica Glenny spoke at the Belvidere Chamber of Commerce Manufacturer's Appreciation Breakfast.
The topic: inventory management. 
Based on the discussion and amount of inquiries after the event, I think it's fair to say that inventory is something that is on everyone's mind.
During Business Clarity sessions, effective inventory management is often brought up by clients, and they're issues aren't isolated to just them.
Inventory is an issue that plagues businesses of all sizes and the same questions typically come up:
- Do we have accurate accounts of all products, materials, or parts?
- What is the physical location of each inventory item?
- What is the cost of producing each unit of product or service?
- Are we ordering appropriate quantities of inventory for future production and sales?
- Do we have any inventory that has been sitting on the shelves for years?
- Are we currently holding too much or too little inventory?
These are all questions that can be answered with the correct work flow process and by understanding inventory ratios
Because it is such a common pain point and has been a hot topic around here lately, we have pulled together some white papers that cover different aspects of inventory management.
Demand Planner
Inventory Turnover Ratio
Guide to Inventory Management
We've all been hit really hard by this winter weather, so what better way to relax than with a good book? We decided to take a break from our usual accounting basics and ERP software talk to compile a book list for you. Check out some of our favorites that made it to our 2010 Winter list
Make Today Count - John C. Maxwell (Center Street) This is the second time Maxwell has made it onto our reading list. (Check out the other time here). Maxwell's book discusses the importance of making the right decision in twelve critical areas of your life, or what he refers to as the "Daily Dozen." Maxwell suggests the path to being successful starts small with making the right choices on a daily basis.
The Narrative of the Life of Frederick Douglass -Frederick Douglass(Fall River Press) Considered a milestone in American history, The Narrative of the Life of Frederick Douglas chronicles the life of the famous abolitionist. Originally published only seven years after his escape from slavery, it became an instant success.
Common Sense -Thomas Paine (Penguin Classics) This is the pamphlet that started it all. First published in 1776, Common Sense challenged the authority of the British government and the royal monarchy. What made his writing so popular? He didn't try to wow the masses with philosophy, instead he wrote for his audience, not above them, impassioning them to want to make a change. It's still as inspiring today as it was nearly 250 years ago.
Embrace the Struggle- Zig Ziglar and Julie Ziglar Norman (Howard Books) Written after a traumatic fall that lead to a head injury Embrace the Struggle discusses the importance of optimism to get us through the hard times we all eventually face. Through his own stories and the stories of friends, Ziglar highlights "living life on life's terms."
Exploiting Chaos: 150 Ways to Spark Innovation During Times of Change- Jeremy Gutsche (Gotham Books) Hailed by many as one the best business books of 2009, Exploit Chaos takes readers on a visual journey to help ignite ideas for a successful business. Gutsche's writing style and graphics fit in perfectly with today's busy reader. Looking for inspiration to put these challenging times to good use? Check out this book.
The Findability Formula: The Easy, Non-Technical Approach to Serach Engine Marketing- Heather Lutze (John Wiley & Sons) Ever wonder how customers are thinking when they search for a product or service? Lutze's book helps marketers at all levels of experience re-energize their website to make them more profitable. Her step-by-step guide to Pay-Per-Click campaigns helps to make your company visible throughout the customers' buying cycle.
Your monthly business financial statements provide information about previous months' activities, but even if the statements look good, you can still bet more out of them.
Many business owners rely on monthly financial statements plus monthly financial ratios. Ratios can be prepared from information already in your accounting software. Following are tools for measuring particular aspects of your business:
Liquidity:
- Current ratio - current assets over current liabilities.
- Receivables turnover - how quickly customers pay.
- Inventory turnover - how long your inventory sits.
Profitability:
- Profit margin - profit generated by sales.
- Asset turnover - sales generated by assets.
- Return on assets - profit generated by assets.
Solvency:
- Debt to total assets - percent of assets owned by creditors.
- Interest coverage ratio - ability to pay interest.
- Cash debt coverage ratio - ability to pay long-term debt.
Program your accounting system to produce key ratios, review them monthly and get new insight on your business.
In talking with growing businesses, we're finding a common theme of data reentry. If your employees enter and re-enter sales information in multiple software programs, it can slow the sales process and allows for data entry errors. But how can you streamline the work flow management?
Answer:
Procedures within the sales process may be fragmented in various ways, for example:
- Sales inquiries are received by e-mail, telephone and fax
- Inquiries are maintained on a spreadsheet
- Price quotes are calculated on another spreadsheet
- Follow-ups are maintained on yet another spreadsheet
Most accounting software can maintain and integrate several procedures within a single program. The software applications can generate lead follow-up letters, check inventory levels and automatically reorder, forecast potential product demand and allow customers to enter orders through your Web site.
Streamline your software system. Your business will save money, and your sales force will become more productive.
Now that 2010 is here, people are scrambling to figure out how they're going to keep their New Year's Resolutions. They picked out their personal resolutions - lose weight, quit smoking, start a hobby, save more, spend less... but what about New Year's resolutions for your business? How are you planning on taking what you learned in 2009 and putting it into practice for 2010 and beyond?
Coming up with goals for the New Year is great, it gives your business something to work towards, but don't let it stop there. Planning out how you're going to achieve those resolutions is just as important as the resolutions themselves. They don't always have to be grandiose tactics, sometimes it's the simple steps that keep you on track.
Let's say your resolution is to pay more attention to the financial health of your business- take what we like to call "5 at 5"
Every day at 5:00 (or whenever your day at the office is winding down) take five minutes to review your key performance indicators. Here are some possibilities:
- Day's cash receipts
- Days' cash disbursement
- Current ratio
- Accounts Receivable (A/R) aging
Work your tactics into your daily routine, and your resolutions won't be as lofty as they seem.
What are some of your business resolutions this year? Better yet, how do you plan on keeping them?
At the risk of sounding cliché, can you believe how fast this year flew by us?
We only have a few days until 2010 is in full swing. In just a few short days, companies will be faced with getting ready for the New year while wrapping up 2009.
The big question we get from area businesses it "How do I handle my accounting software?"
Many accounting packages allow a "preliminary closing" of last year's files while permitting transactions to be entered in the New Year. Here are some tips to help in the transition to the New Year:
- Back up last year's data files.
- Review your software's manual for year-end activities.
- Hold your prior year data files open until ALL transactions have been entered in the system - including entries for income taxes.
- Be cautious when entering transactions - verify that you are in the proper year.
- When in doubt, ask for help.
Closing out one year while trying to prepare for another doesn't have to be confusing. Just follow the steps above and you'll be able to close out 2009 while prospering in 2010.
Unless your company is strictly service based, someone in the business is managing some kind of inventory. Or are they? Do you really know the answers to the following questions:
- Do we have accurate accounts of all products, materials, or parts?
- What is the physical location of each inventory item?
- Are we ordering appropriate quantities of inventory to accommodate future production and sales?
- Do we have any inventory that has been sitting on the shelves for years - "It was a really good buy!"
- How are returned items handled within inventory?
- What inventory items generate the most profit?
Many small to medium sized companies struggle with their inventory tracking software. Some businesses maintain procedures for tracking inventory that are labor intensive. Usually that "labor" is diverted from other revenue-producing activities such as manufacturing, retail sales, and service calls.
What inventory questions do you have? Knowing what information your business needs about its inventory is the first step in inventory management.
Take time to determine your needs; you will drive money to your bottom line with proper inventory management!
Last month, Microsoft discontinued their Office Accounting product and a lot of small businesses where left without accounting software to run their company.
A recent Business Week article by Gene Marks highlights Microsoft Office Accounting and the story of a business owner of who was one of the many that purchased the software and ultimately lost out. Marks highlights the importance of businesses knowing about the technology that's available to them before they make the investment. 
Lately we've been getting a lot of questions about software add-ons and accounting application service providers (also known as ASP's), what they are and how they can help with their business accounting.
An accounting ASP is an Internet service that provides business accounting software on line. ASP accounting services range from specific functions, to fully integrated packages.
There are three types of accounting ASP's:
- Completely Web-based packages
- Desktop packages redesigned for Internet use.
- Partial accounting applications - on line bill pay, for example.
Monthly fees typically are a flat Internet access rate plus a fee per accounting module - accounts receivable, accounts payable, payroll, etc. Charges typically run anywhere from $10 to $500 per month.
If you are considering an ASP for your business accounting, make sure you weigh these factors.
There are some distinct advantages of ASP's including:
- Allows remote access to financial information.
- Cost savings over in-house software.
- Useful for businesses with multiple locations.
With that said, there are also significant disadvantages:
- No personal interface with accountant.
- Security issues - financial information must be protected.
- Data conversions may require manual input.
Whenever you're looking at purchasing new accounting software, make sure you consider your business requirements first whether that is in-house or on line.
Know your software options- Download the Software Selection Guide
Monica recently brought in a book that belonged to her grandmother Gladys, 20th Century Bookkeeping & Accounting by James W. Baker, published in 1919.
As we were thumbing through the pages, we couldn't help but notice not a whole lot has changed in the world of accounting. The preface of the books starts out like this:
"The successful business man should know what a profit will result from the transactions in connection with his business before they are completed."
He goes on to say there's a connection between success and accounting. In order to make money, you need to know how to manage it... not a whole lot has changed in 90 years.
It might not be the most fast paced and exciting aspect of business, but it's definitely one of the most important. We've preached before about knowing your numbers (here, here, and here just to name a few) but we just can't say it enough.
Sure, the process and speed of how we can access the information has changes, but the fundamentals haven't. There are a lot of great accounting software packages out there that have made accounting easier and more accessible to everyone to understand but what's just as important as learning the software, is learning the process behind it.
In order to make money you need to know how it manage it... some things never change.
Managing inventory proves to be a challenging task for many managers and requires knowledge of inventory accounting basics. While the level of inventory varies from business to business, a reliable way to tell your inventory turnover rate is to utilize inventory turnover calculation measures.
The inventory turnover ratio tells you how liquid your inventory is- or how quickly your inventory can be converted into cash.
This ratio measures the number of times (on average) that your inventory is sold during a given period. It also measures how quickly your inventory can be converted into cash.
The inventory turnover ratio is calculated one of two ways. The most common way to calculate the ratio is:
The second and more accurate way to calculate the inventory turnover ratio is:
The second calculation is more accurate because "cost of goods sold" reflects your inventory's book value, and by averaging the inventory, you can reduce seasonal factors that influence the flow of inventory.
Generally, a high inventory turnover ratio means that your products are selling well. But before you get too excited about a high ratio, you need to compare it to the industry standards. If your ratio is higher than other companies in your industry, it could mean that your inventory management systems are ineffective.