Do you struggle with inventory tracking in QuickBooks Online – Part 1?

I have a client who has approximately 1500 SKUs  in inventory and use QuickBooks Online (“QBO”) to track inventory inputs, outputs an balances-on-hand . The bad news ……my client has over 350 SKUs with negative quantities on hand. 

Somewhere along the way, my client lost control of the QBO processes for inventory tracking and has not posted inventory adjustments for over 18 months.  As a result:

1.  Net income is misstated , most likely overstated,

      2.  Cost of sales is misstated, most likely understated,

3.    Gross profit and gross profit percentage is misstated , most likely overstated,

4.    QBO will not permit an accounting close date to be established. As a result,  accounting transactions can be recorded  in the wrong reporting period without warnings with the risk that net income, asset and liability accounts are incorrectly reported for multiple reporting periods,

5.    The risk of inventory loss is increased and the cost of managing inventory is higher than necessary. Bi-annual physical inventory is taken rather than a program of cycle counting throughout the year and reviewing adjustments to inventory on-hand balances in a more timely manner,

6.    The value of time taken to enter data into QBO is diminished. The client still enters product purchase orders in QBO by SKU with quantities and unit cost information knowing that these transactions are being added to on-hand balances that are in many cases inaccurate. The client also enters customer invoices into QBO with a SKU, quantity and unit price with the same knowledge that this is updating on-hand quantities that are wrong.

My client recognizes all these problems and has decided to investigate what it will take to return to implement perpetual inventory processes to eliminate the need for full scale bi-annual physical inventory counts and have accurate reporting of net income, inventory assets for every accounting period.

Intuit has told me that QB Online, in current form, is not ideally designed to manage this many SKUs well.  They recommend using an Add-on App to QBO.  They did mention that there is a huge inventory enhancement due out in the next 120 days or so, but these Add-on-Apps are definitely worth their cost in workflow efficiency and informational reporting, restocking advice and notice etc.   We shall see!

The original intent of their  inventory management program was to reconcile inventory counts with QBO on-hand quantities on a regular basis to track inevitable overage and shortages. 

Once we have inventory is accurately reflected in QBO, portions of inventory will  be counted each month and the differences recorded as a Journal Entry to reconcile the actual inventory count.  The point is to spread the counting of every SKU in inventory into smaller occasional jobs.  If monthly - 120 items are counted once a month or perhaps 35 items counted each week.  The schedule of what is to be counted should be kept close to management, so staff never know what items will be counted and reconciled each week or month.  This will help identify process inaccuracies, overage or shortages and worse, an employee attributed issue.

Stay tuned to our upcoming blogs for step-by-step progress on our project.

Have us write-up the processes you need to lower your administrative costs.

A significant portion of administrative costs can be spent paying employees for skills you don’t use on the one hand and correcting errors that go undetected when you use untrained employees on the other hand.

Of course, in the open employment market you have to pay for the skills that your employee makes available to you. But have you thought how many hours you actually use those skills versus how many hours you are paying just to have those skills on hand. I think we know that higher paid staff spend many hours filling in their time with a lot of lower paid work or no work at all.

Let’s just suppose that a $50,000 a year person spends 20% on work that a $25,000 a year can be trained to do. The savings would be $5,000 ($50,000 minus (($50,000 X 0.8) + ($25,000 X .20)) or 10% of the total gross pay.

OK so there is a savings opportunity, but how to actually achieve a real savings of the $5,000. If you wanted to keep the work in-house, you would have to reduce the senior person’s annual salary from $50,000 to $40,000 and then hire someone for 8 hours a week at an annual rate of $25,000 maybe at an hour a day! This would be difficult if not impossible to achieve.

First of all the senior person is not going to suggest a reduction in their own salary. On the other hand, if you make the decision to reduce the senior person’s salary, the person won’t be staying around very long. Finally, it would be impossible to hire someone for only 8 hours a week and expect to retain their services on a long term basis.

So now we know there is a cost savings opportunity but no easy way to really achieve the savings.

But maybe there is a way!

You let the senior person go altogether and outsource either all the work to a company like Stenson “Bookkeeping Simplified"or outsource at least the high level skilled work and have us map, implement and train entry level staff to do as much of the work as possible at a much lower cost.

That way you are only paying for the skills you need when you need them!

By the way, the mapping of the processes would include all the controls that a business owner would have in place if in-house staff existed or not.

Don’t wait to phone us at 214-390-7446 to hear more about outsourcing your back-off bookkeeping and other administrative processes.