Monday, September 12, 2011

STOCK is MONEY - manage it right, manage it tight.

I've been inspired to write this post as I have noticed there are so many little businesses out there owned by mums that love to sell (&/or make) and never really give much thought to stock and its cost and the importance of having readily available information at their finger tips regarding cost, margins, sales, age etc to create a picture on where they are in their biz thus enabling important decisions to be made quickly & easily. (sorry  - a big sentence!)

It is really important to have a helicopter view of your biz when you sell stock so you understand the relationship between

  • buying & selling: lag in between 
  • cost price v's sell price
  • sell price & discounts / promotion strategy
  • margin v's mark up: margin speaks P&L as a margin is a % of sales / ie top line and therefore quickly relates to bankable dollars on your P&L) 
  • margin $ v's margin %: a big margin % on a low price item sold in small qty will never bank as much money as an average margin on a high sales volume item. ie no point gloating about a big margin or markup on an item when it doesn't sell much.
  • stock age: turn pa, shelf life, seasonal 
  • slow and fast movers: freeing up money to buy what sells, ensuring SOH on what sells, tailoring your product range to suit your customer.
  • sales reports:  in a)units, b)$ and c) margin $ d) not to mention x customer, x territory, x channel - however you slice & dice it to make the right decisions. 
  • customer sales reports: managing key account &/or channel profitability so you understand the true cost of sale as it takes into consideration your management time, promotional costs, shipment costs etc. 
  • Gross Profit / Contribution ie True cost sale which is sale price less cost of goods less cost of sale (your time!) less cost of promotion (discounts & give aways) less cost of shipment/storage/ullage etc)
AND how it all relates back to your P&L & Balance sheet because if you are not tracking stock regularly (like daily orders - worst case weekly) by cost and sell price then you can't run an accurate P&L and therefore have no idea how much you make out of sale or if you have a enough money to cover your overheads (fixed costs) or buy more stock. Coupled with that you can't run a balance sheet to see where you are. A balance sheet simply holds your assets -  SOH (Stock on Hand ie the investment of holding all that unsold stock & stock on order)  + your accounts receivable (if you are not pre-payment) and takes off your liabilities (what you owe for stock, wages, ATO, loan etc) to come up with your financial position.

In this day and age there is no excuse for a micro / small biz not to run an online accounting system that manages inventory (ie purchase orders, receive stock, stock list, less items sold, cost of sale) and is linked in with your online shop. Sure, there are fully integrated systems but we are talking something low cost and sometimes even free that is manually assisted so sales and stock are tracked back into the accounting package for easily run reports that tell you what your biz health (wealth) status is instantly - daily, weekly, monthly & quarterly.

It sounds like a lot of paper work but truly, once you get some help to set up your P&L & Balance sheet properly and set up some systems, everything else just falls into place and you have a beautiful (or not so beautiful) picture of where you are sitting.

If you are interested I can share much more detail on this, or pop online some report formats, show you the layout of a P&L that gives you answers, looks like etc. We could also explore some of the accounting packaging and/or online shops that are suited to Australia.

Let us know your thoughts. :)

1 comment:

Anonymous said...

thanks that would be very helpful