If you’re like most business owners, you probably don’t give much thought to your inventory value report. After all, what’s the big deal? It’s just a bunch of numbers, right?
Your inventory value report is actually one of the most important financial documents you have. Why? Because it tells you the value of your inventory at any given time and provides one snapshot of your business’s overall financial health.
This information is critical for a number of reasons that we’ll explore in this article. The President of CFO Simplified, Larry Chester, shares the importance of inventory value reports with us.
An inventory value report is a financial report that lists the value of a company’s inventory at a specific point in time. The report provides a snapshot of the company’s inventory and can be used by management to make decisions about production, purchasing and other strategic decisions.
According to Larry, “-you have an ERP system in your company that gives you more reports than you ever care to look at on things such as accounts receivable balances, accounts payable balances, it tells you what your sales are, it gives you financial statements at the end of the month, it tells you everything that’s happening, including payroll and profitability.”
Enterprise resource planning (ERP) is a system that helps businesses track and manage information related to their operations. This includes data on customers, suppliers, inventory, finances, and more. By integrating all of this information into one system, businesses can get a better overview of their operations and make better decisions about how to run their business.
There’s a good chance that there is one report you don’t pay very much attention to and that’s your inventory value report.
If you’re a manufacturer or a wholesale distributor, you should be comparing the value in that inventory value report to one line on your general ledger, and that’s the value of inventory.
Here is probably the largest single asset in your company, and if you’re not making sure that those numbers are correct, you’re missing a very important reconciliation that you need to do.
Larry emphasizes, “-that every item that you have in your warehouse has a value. It’s how much it cost you to buy that product and the inventory value report takes the cost of one item and multiplies it by the quantity of items that you have in that one item group and gives you the total value of it.”
It tells you the value of that family group of products that you’ve got in the warehouse and it tells you how much the total value is of that large asset that you’ve got.
Now, this is important for a lot of reasons.
First of all, you need to make sure that that number’s correct because that’s a large number that impacts on the value of the financial reports that you’re printing regularly.
And if those numbers are wrong, if the number that you’re using for the inventory is wrong, it’s going to:
You have inventory that you’re selling actively but I’ll bet you also have inventory that you’re not selling. There’s inventory that was left over from last year’s sales, product that’s no longer valuable, product that is obsolete. And are you tracking that? Are you keeping that on your inventory value report someplace? Because that’s an asset of the company and it’s an asset that you should be getting rid of because the only time you make money in your company is when you sell product and you turn it over.
If you have obsolete inventory that you’re not selling and it’s showing up on your inventory value report, you should find a number that allows you to sell that so that you can buy active inventory that you’re going to be able to sell to your customers and make money on. It’ll give you an indication of whether the pricing is right, whether the cost that you’ve got in your system is correct. If you look at it carefully, it’s going to tell you whether your master pack quantities are correct and you’re going to be able to get a general idea and a very specific idea, if you look in the depth of it, of how every single product is maintained, both from a value, a cost, a master pack point of view, and a location point of view in your warehouse. That’s a really important report and you should be paying attention to it and making sure that it’s correct.
So do this now: Print up an inventory value report, print up a general ledger and compare the value of that inventory value report to what’s in your general ledger. And if it’s not correct, you better start doing some work right now.
The inventory value report is important because it tells you the value of the products in your warehouse. It is important to reconcile this report with your general ledger to make sure that the numbers are correct. The inventory value report can tell you if your pricing is correct, if your master pack quantities are correct, and how every single product is maintained from a value, cost, and location perspective.
So if you’re not already in the habit of regularly checking your inventory value report, now is the time to start. Trust us, your business will thank you for it. If you have any questions about your inventory value report, reach out to us!
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