Outsourcing professional services such as bookkeeping services in Irvine, CA is
often a good idea, especially if you need accurate financial information and
professional reports.
You
can analyze a business’ efficiency through different paths, one way to do it is
through the company’s inventories. Outsourcing professional services such as bookkeeping services in Irvine, CA is
often a good idea, especially if you need accurate financial information and
professional reports that will be useful to you without hiring an in-house
accountant.
The
inventory is formed by the raw materials, the unfinished products and final
products produced by an organization. There are different techniques to analyze
and understand the inventories depending on the information needed by the upper
and lower management.
Why
are the inventories so important to assess the performance and efficiency of a
company? Because in order to pay bills and return a profit, a company should be
able to turn their inventories into cash as quickly as possible.
The
information needed to analyze the inventories is contained in the financial
statements. The most common way of doing this is through a ratio analysis, this
analysis is performed using inventory balances over a period of time
(historical inventory balances). Through this type of analysis you can
determine if there’s any problem with the inventory management. The opportunity
areas that you can encounter are product or material obsolescence, high
inventory levels and slow inventory turnover.
Some
of you are probably wondering, what is a ratio analysis? It is an analysis of
the information included in an organization’s financial statements such as the
income statement, the cash flow statement or the income statement, it can be of
just one item or a combination of items. The comparison of the results of these
analyses can help us determine if the performance is improving or if it’s
deteriorating of whatever information we are analyzing.
So
let’s see, without getting into financial formulas or complex explanations,
here are some of the things that you can learn and improve in your company
through an inventory analysis. Product or material obsolescence, if you have
either raw material or products with an expiration date or that are under a
“trendy” category, if they spend too much time in your warehouse, it can lead
to money loss due to expiring dates and you may need to sell them even below
the purchase value or you might end up losing your investment completely. Some
companies work with temporary import permits that if they reach the limit may
cause a problem with the authorities resulting in very costly fines and in the
best case scenario, you’ll have to send the goods back to its country of origin
and import them again and then your business will end up paying double cost of
transport, import permits and handling.
When
you have high inventory levels, the cost of your warehouse management increases
accordingly and your liquidity is affected, this is not ideal in any case, your
inventory level should be as low as it can be. And when you have a slow
inventory turnover you can end up with problems to cover your operational
costs, you may struggle to pay your debts and eventually if this problem keeps
on going long enough, you won’t be able to cover your expenses as a company.
These are just the most common situations that you can find in your
inventories.
As
you can see, your financial information is of vital importance for a proper
management control and if you can’t afford an in-house accountant, you should
outsource a professional service such as bookkeeping services in Irvine, CA to keep your financial information accurate.
About Get All Updates
0 comments :
Post a Comment