Helping Clients Choose the Right Inventory Management System

Inventory management and accounting go hand-in-hand. Both provide essential information to create efficient operations and accurate financial data. This is why it is so imperative that your clients have an inventory management system that is optimized for their business and pairs well with their accounting software. 

In this article, we’ll explain the roles of an inventory management system, why it’s important in accounting, and things to look for as you help your clients choose an inventory management system.  

What is an Inventory Management System?  

An inventory management system is typically a software application used to track, control, and manage inventory for businesses.  

To dig a little deeper, it helps businesses effectively:  

• Monitor inventory levels 
• Streamline procurement processes 
• Track stock movements  
• Optimize inventory operations 

Inventory management systems ensure businesses have the right amount of inventory at the right time, in the right place, and for the right cost. With a good system, they won’t have to worry about running out of stock or tying up excess capital by having excess inventory.  

Most of these systems offer features like:  

• Inventory tracking 
• Order management 
• Reordering and replenishment  
• Stock control 
• Reporting and analytics 
• Integrations with other systems 
• Forecasting and demand planning 
• Supplier management  
  

Importance of Inventory Management in Accounting  

Strong inventory management is key for accurate accounting. There are three areas where it has the biggest impact, and we’ll cover each below.  

Accurate Financial Reporting 

The accuracy of financial statements relies on proper inventory management. For example, the value of the inventory directly affects the calculation of assets, liabilities, and owner’s equity on the balance sheet.  

With good inventory records, you can give your clients a more accurate picture of their financial position. 

Cost of Goods Sold (COGS) 

Inventory is directly related to calculating the cost of goods sold (COGS). COGS reflects the cost needed to produce and/or acquire goods sold in a set period and makes up for a significant portion of a business's expenses.  

With accurate inventory management, you can help your clients accurately calculate their COGS, which is then recorded on the income statement. 

Profitability Analysis 

Accurately tracking inventory costs allows you to determine your client’s business margin between sales revenue and the costs of goods sold. This provides insight into the profitability of specific: 

• Products 
• Product lines 
• Business segments  

From there, you can help your clients identify high-profit and low-profit areas and encourage them to make informed decisions to maximize profitability.  

Things to Look for in an Inventory Management System 

If you want your clients to have efficient business operations, choosing the right inventory management system is crucial.  

Integration with Accounting Software 

If you want to eliminate manual data entry and ensure a smooth flow of data, make sure you select an inventory management system that integrates with the existing software. Most tools will integrate well with QuickBooks.  

Real-time synchronization is also key because it allows for immediate updates on inventory levels, sales, and financial transactions. 

Automated Tracking and Recording 

Your clients need an inventory tracking system that provides real-time visibility into inventory levels, locations, and movement so they can make informed decisions about stock.  

Another helpful feature would be one that automatically generates purchase orders based on predetermined order points or when inventory falls below a certain threshold.  

With these features, your clients will keep appropriate stock levels and minimize the risk of stockouts or excess inventory.  

Accurate Costing and Valuation  

Look for an inventory monitoring system that allows you to assign costs to inventory and supports different costing methods.  

You and your clients should be able to assign costs at the individual item level and account for factors like:  

• Purchase price 
• Freight costs 
• Additional charges 

You also want to make sure the system offers the ability to support different costing methods as this can vary depending on the business’s needs.  

Reporting and Analytics Capabilities 

Finally, reporting and analytics capabilities are essential for gaining valuable insight into inventory performance, profitability, and trends.  

The inventory management system should include pre-built reports that will help assess inventory performance and identify areas for improvement, like:  

• Inventory status 
• Stock movement 
• Sales analysis 

Because your client's business is unique, the inventory management system should also allow you to create custom reports and dashboards based on important key performance indicators (KPIs).  

If you’re searching for an inventory management system that integrates seamlessly with QuickBooks and is worthy of a recommendation to your clients, Katana may be the answer. 

It’s a cloud manufacturing platform that streamlines accounting, inventory, and production. With Katana, you can give your clients all the features they need to ensure they are properly managing their inventory.