Why does it matter that my inventory and accounting data is accurate?
A really common question!
Two things to understand first: 1) it’s very common and easy for your data to get out of whack. In accounting, everything builds upon previous entries so small errors compound over time to be big messes and 2) because we use “double entry” accounting, everything has to balance. Without getting technical and explaining the accounting equation, suffice it to say that everything has to go somewhere and nothing really ever disappears. It all gets moved around.
So why does accuracy matter? Here are some reasons:
IRS compliance. I think this one is self explanatory but those folks do not like it when you lie to them, even by accident. That can be an expensive problem.
You want happy customers. If you don’t have robust inventory management or accounting, this will cause such a headache for your customers. From double billing, running out of product they’ve already paid for, or having to apologize repeatedly for ever extending timelines because you run out of ingredients… not having your data under control is going to be bad for business.
So you can understand where your company stands and where it is going. This is my favorite reason and the one I’m most interested in helping my clients achieve. While accurate books are important for tax prep and accurate inventory numbers are critical for customer retention, your business will only begin to thrive once you have a handle on the reality of it. If you don’t know how much you have on hand, you can’t know how much to sell or how much to order. When it seems like you are always cash poor there’s no way to know why unless you have accurate information on your expenses. If an opportunity presents itself for a capital infusion, a partnership, or perhaps an investment… you can’t jump on that unless you know your company’s health (and often can prove it with accurate financial documents). When you cost of goods sold numbers aren’t correct, you can’t figure out which of your products are more profitable and whether you need to source different materials or raise prices.
Over the years I have helped clients get a handle on their costs of production, figure out why their numbers never matched reality, prepare for selling a company, produce financials for getting loans, and feel confident they can plan for the future.