5 Key Benefits of Inventory Accounting For Ecommerce Businesses

The very nature of e-commerce revolves around inventory. There has to be enough of it in storage to cover online orders from customers, and the company has to be sure to restock when items run low. That’s inventory management, and keeping on top of it ensures that businesses have a good flow. It’s this flow of business, in fact, that produces company profits. But that’s not the complete picture. The actual cost of the inventory plays an important part as well.

The inventory has a monetary value, and there's a cost involved in storing it. Since it would be bad business practice for the profits made from sales to be taken up by the cost of warehousing the items, it’s important to take storage costs into account when setting a selling price for them. Pricing items correctly and gauging inventory levels to fulfill orders while maintaining their profitability is one of many important inventory management techniques. The worth of the inventory is also a factor when a company is valued, and this valuation will impact the share price for public companies and the ability to gain investors for private companies. These considerations directly impact the amount and type of items an e-commerce company warehouses and should affect the way that the company conducts warehouse management.

To arrive at these levels, tracking inventory cost is as important as keeping tabs on the inventory itself. The data this involves can be complex and complicated. What’s more, the larger the company, the more of a head-scratcher these calculations can be.

The way around this is to use accounting software, which can be integrated into inventory management or ERP systems. It will collect the necessary data and do the financial calculations for you.

In this blog, we’re going to look at five benefits accounting software can give you.

1. Increase profitability

When you’re keeping an eye on the money, you have total knowledge of the amount you’re making from sales, how much the inventory is costing, and which items are the most profitable. This information moves your warehousing practices up from being about maintaining stock levels to concentrating on carrying those items that yield the most income. If an item is large, cumbersome, and expensive yet moves slowly and only has a small profit margin, for instance, you might decide that carrying it isn’t worth the cost of storing it.

This brings us neatly to price points. When you know how much it costs to store an item, you can work out the right price at which to sell it. Incoming and outgoing data also give you a very clear picture of your cash flow, and when you have that, decisions can be made about the business as a whole. Assuming you’re ahead of the game you could, for instance, expand the business or invest in more expensive machinery.

2. A complete overview of financial health

When accounting software for e-commerce tracks and records the costs of goods and the profits they yield, it does so for every supply chain, outlet, and sales channel. Armed with this information, a business manager can easily see where things are working well financially and where they’re not, and can make important decisions about the way the company is being run and what’s being sold.

3. Reduced costs

If you don’t incorporate accounting software into your inventory management system, the financial data it records will have to be input manually, and it will then have to be reported separately to the company accountant, increasing both labor costs and time. The fact that accounting software integrates with other digital accounting systems makes it even more of a good thing. Plus, the digitalized system also reduces or eliminates the possibility of errors, saving more time and money.

Adding an accounting module to inventory oversight software has other advantages. The data can easily be configured and transferred to more general accounting systems, enabling accurate records to be kept for tax-filing purposes.

4. Accurate financial reporting

The value of the stock that’s in storage and the costs of holding it there are important factors when evaluating how much a company is worth. Knowing this and having accurate information on it is important on many levels. It’s important for tax evaluation, stock price – if the company is big enough to be on the stock market, getting a bank loan on the business, or even selling it. If the value of the stock is not accurate, the worth of the company will be incorrect, and there could be legal consequences. Accounting software added to inventory management software makes this evaluation and reporting as easy as can be.

5. Streamlines and improves fulfillment

Integrating accounting software and inventory management into one platform effectively streamlines the fulfillment process. Tracking the cost of everything along with the inventory as it moves through the system ensures a smooth-running, efficient system that’s cost-effective. This is achieved because there’s no longer a need to have employees keep records on separate spreadsheets. Automating those tasks reduces the possibility of human error and speeds everything up. The whole process will run like a well-oiled machine. Facilitating this even more is the fact that the system is user-friendly.

Conclusion

When you’re looking at inventory management systems and an accounting add-on, you should evaluate your current demands and any plans you have to grow your business. It should also be adaptable, user-friendly, user-transparent, easily integrate with software you already use, and able to cope when your business gets bigger. To learn more, check out the best inventory management software solutions for integration into your accounting tool.