Inventory audit is an accounting method practiced to keep track the product and company’s merchandise. To avoid inventory problems and shortfalls it is necessary to perform an audit on regular basis to gain valuable information.
Usually the word inventory is dreaded word and it is taken as a lot and lot of counting. But businesses consider integrating their inventory at the end of every month some of their most important functions to make sure that the stock is enough to fulfill the future demands of supply. The inventory audit is important to continue business smoothly and successfully. Having a tight control on stocked units means there is more control on the company’s Cash Flow.
“Inventory is money sitting around in another form.” Rhonda Adams, USA Today.
Inventory audit is crucial
A lot of cash is tied up in the inventory of a business. That’s why inventory audit is crucial, it can make or break the business.
1-Purchasing and Selling
An inaccurate and late inventory assessment cause a business to lose money. Overstating inventory will overstate profits and can increase the potential taxes of the firm. Buying and selling decisions should be made on error free information or it can have adverse effect on the profit.
Proper analytical decisions are to be made for the products to meet your sales goals for the present and future season. For example if you are dealing in a product that has an expiration date like food then it will be problematic if you don’t sell it on time. Inventory audit is necessary to prevent unnecessary and fatal spoilage.
3-Avoidance from Dead Stock
To manage your inventory better is to better avoid stock that is gone out of style, out of season or expired. Discarding the stock that can no longer can be sold and gives you room for new stock. Through periodical inventory audits you can stock up on more of your top sellers.
4-Save Storage Cost
Stocking too much product at once or stocking too many units that are difficult to move will drive up your storage cost. To avoid this, make a list of your variable costs that are depending on how much you sell when you are performing an audit.
5-Cash Flow Management
Inventory audits, along with saving your money, also improve the cash flow of your company. Through regular evaluation of money for products you have paid for and product you are going to sell you will have a sound knowledge of your financial stream. It affects both sales and purchasing by stating how much you can sell and what you need to buy.
If you have a solid inventory system that you must make a regular inventory audit to make sure not to lose sales but also you can project your buying plans along with the associated cash.