Your inventory costing methods depend on two factors—the age of your inventory and your business taxes. To get the greatest value for these two areas, you want to select the optimal method for calculating inventory cost.
The First-in, First-out or FIFO method is the oldest inventory counting method, yet is best for smaller businesses. The Last-in, First-out LIFO method is better suited for an inventory that will increase in cost, but the method is not ideal for international transactions.
Why not consider a more efficient way to handle these complicated inventory costing methods?
The Bad and the Ugly
Selecting the right method for calculating inventory cost is important. Once selected, if you want to change your inventory costing methods, you will have to report this to the IRS, which can be a tedious process. Consider how these methods are utilized.
You can use both the FIFO and LIFO methods with either periodic or perpetual inventory management. While the perpetual inventory is tracked using point-of-sale (POS) technology, periodic inventory management involves manual calculations.
If you have a smaller inventory, along with the factor of human error with manual calculations, you are also spending a lot of time with this type of inventory management method. Perpetual inventory, which is more common among larger wholesalers, takes advantage of technology for cost savings in calculating inventory costs.
Pros of Choosing Automation for Wholesale Business
Automation is the use of technology to reduce time and energy spent calculating inventory cost. By using POS technology and automated processes, you speed up and improve accuracy with calculations. Your teams can run a variety of reports based on their departmental needs, i.e., accounting or logistics, from the data. This can be used to evaluate business systems and improve practices, as well as your bottom line.
Benefits of Using Automation for Efficiency
To increase visibility within your inventory and finances, automation offers the following benefits to your business:
- Improved electronic file organization, accessibility, and maintenance.
- Digitized invoicing ready to submit to clients electronically to improve billing time.
- Streamlined order processing to reduce errors and improve customer confidence.
- Centralized communication for dispatching logistics service providers and freight shippers.
- A complete overhaul of all accounting processes for more efficient methods.
- Managed regulatory compliance in any industry area with proper documentation and accurate information.
Automation allows you to improve the use of vital resources your company invests in. As a result, you will be able to increase your profits throughout a number of areas within your business practices.
The Good and Beneficial in Automation
The use of automation technology will provide a direct return on the investment for your business. There are some ways this will happen for your company no matter what you sell.
Start with the fact that you are able to minimize mistakes and human errors when creating orders and calculating invoices.
When it is time to calculate the cost of your inventory, you are not spending time manually sifting through the information to find these tedious errors. Your business information is available and accurate for use however you need it.
Automation also allows you to expedite calculations when filling out invoices and completing accounting processes. Automate using ready-made formulas and processes to eliminate the manual work that goes into calculating via inventory costing methods at the end of the year.
Along with speeding up those annual reports, you are also able to realistically evaluate your business plan according to actual inventory values. More importantly, you have accurate information when you prepare your business taxes and submit the cost of your inventory to the IRS.
Automation provides you with a database of big data specific to your business and customers. Big data is invaluable as an asset for evaluations that will help improve the efficiency of your company. However, it is not possible to manually process big data due to its complexity.
This is another area where automation wins—yet again—by offering the calculating power for organizing, processing, and analyzing big data in useful bites for businesses big and small. You have the data about your inventory to truly be able to determine its overall value.
Wholesale Executive Insider is a publication dedicated to helping wholesale executives stay up-to-date with the latest industry insights to improve their operations and increase their bottom line.
Our team has deep industry knowledge, and a network of solution providers that help wholesalers leave back office headaches in the past so they can focus on growing their business. If you’d like to get free advice and recommendations on running a more efficient wholesale business, feel free to book a time to speak 1-on-1 with one of our knowledgeable industry advisors.