Calculating inventory can be one of the best decisions for your business. No doubt that it is a complex process for any business. But, unless you know why to calculate your inventory, you won’t find meaning in this job. Remember that inventory has the power to make or break your business. And calculating your inventory can give you the business visibility.
So, if you’re wondering the reasons why you should be calculating your inventory, don’t worry! We’ve got you covered! Read on to find out more-
Understanding the Concept of Inventory
Inventory refers to the physical units in your storage that you are selling to your customers. In simple words, it is what sells in the market.
In case you are a manufacturer inventory for you will mean the raw products and items that will be used in your production. Similarly, if you are a seller, inventory will mean finished goods such as apparels, books, jewellery etc.
The inventory is usually held by a business to make sales. Most sellers have their warehouses where they store their inventory. If you are selling software or a service you need not worry about this. Because you don’t have to deal with physical inventory. Similarly, businesses that have physical products have to deal with inventory.
Before you know how to calculate your inventory, it is imperative to understand inventory. Because this is what you will be calculating for all your business correspondences.
However, if you are a dropshipper, your inventory might sit with your supplier. In this case, you are not directly holding your inventory. But, that doesn’t mean you’re entirely free from the responsibility of how to calculate your inventory. Dropshipping does involve less details of inventory because you don’t have to deal with them physically. But, nonetheless, it is something you have to have to pay attention towards.
Now that you’re aware of your inventory, let’s move on. In the next section we will try to understand why calculating inventory is important. And then we’ll finally proceed to how to calculate your inventory.
Why Calculate Your Inventory?
Calculating inventory is important for various reasons. First, it throws light on several factors of your business. It gives you accurate estimates of several parameters. Let’s look at some of the main reasons why calculating your inventory is useful.
Get an Idea of Your Beginning Stock
If you don’t know how to calculate your inventory, how will you figure out your beginning stock. It is important to know how much stock you’re beginning your business with. Especially for a financial year, you need to know your accurate stocks. Your beginning inventory tells you about your inventory generating potential. Therefore, there is no way that you want to miss out on calculating it.
Figure Out Your Ending Stock
Just like the beginning inventory, it is important to know how to calculate your inventory that is ending. In other words, at the end of a financial year it is quite likely that you have some remaining inventory with you. This tells you about the value of goods and services towards the end of the accounting period. If you don’t know about your ending inventory, you will not be able to find out your net profits accurately.
Manage Profits
How do you plan to keep a note of your profits, if you don’t know how to calculate your inventory. Remember that calculating inventory is one of the most important steps one has to take in order to track their profits and losses. If you don’t know how to calculate your inventory, you will end up losing a lot of your money, even without realizing.
Know Your Preparedness
When you know how to calculate your inventory, you understand how prepared your business is. In other words, you get an estimate of your actual inventory. So, if you are running low on a particular stock, you can purchase more of its units. In other words by knowing how to calculate your inventory, you are preparing your business.
Conclusion
Now that you know the importance of inventory and why you need to calculate your inventory, start taking the right steps. This will help you gain visibility in your business and monitor your inventory more closely. Forget the risks of running out of inventory or hoarding an extra amount. With precise calculations, you can leverage your inventory to expand your business and make better profits. Don’t forget to use Dash101 as your shipping partner as it can help you to ship across 26000+ pin codes at the lowest costs.
