5 Tips for Better Inventory Management

There are dozens of ways to improve your inventory management. In this article, we have five important tips for establishing you beginning of year inventory so that you can report your taxes correctly.

The Internal Revenue Service requires you to value your inventory at year’s end so that you can determine your cost of goods sold, or COGSs, gross profits and taxable income. The IRS assumes your beginning inventory for one year is equal to the ending inventory of the previous year — if it isn’t, you must tell the IRS why. To prepare your tax returns, you need to establish your year-end inventory value, either by taking physical counts or by using an estimation method approved by the IRS.

Tip 1 – Prepare for Inventory Count

If you establish your inventory value through a physical count, your preparations depend on how you keep inventory records. If you use an automated inventory management system, you can quickly switch from normal operations to inventory counting in the waning days of the year. Paper-based inventory systems are inherently slower and require you to have stationary inventory before beginning to count. You might need to freeze paperwork, receiving, manufacturing, purchasing and shipping several days before year-end to ensure that no inventory moves into or out of your storage area during the count.

Tip 2 – Count Your Inventory Efficiently

If your inventory is small, counting by hand might suffice. However, many companies use devices such as barcode readers and radio frequency identification, or RFID, tags to speed the process. RFID readers count inventory by receiving electronic transmissions — they do not require line-of-sight access to inventory. Even if you maintain a perpetual inventory system, you can still choose to take a year-end count. This allows you to adjust your inventory value to match the information you collect, and helps detect shrinkage, damage and other problems. The IRS requires you to take a physical inventory at “reasonable” intervals to ensure accuracy.

Tip 3 – Use the Perpetual Inventory Method

The IRS allows you to use avoid year-end counting in two ways — perpetual inventory and the retail method. A perpetual inventory system immediately captures the receipt, movement and sale of inventory, relying on inventory tracking technology and an automated inventory management system. The IRS requires your perpetual inventory system to record the actual cost of inventory you buy, produce, use, transfer or sell. Your ending inventory must also reflect the value of beginning inventory.

Tip 4 – Consider the Retail Method

The IRS permits you to estimate ending inventory, and thus next year’s beginning inventory, via the retail method. To apply the method, you must calculate a cost-to-price ratio for goods you sell. You apply this ratio to sales revenue to determine your COGS. Subtract COGS from the sum of beginning inventory and the cost inventory acquired during the year. The result is your ending inventory cost. If you sell different classes of goods — the normal situation for many retail stores — you should calculate a cost-to-price ratio for each separate class and track acquisitions and sales by class.

Tip 5 – Expand Your Inventory

If you want to grow your company, try expanding your inventory through a business loan. This will allow you to purchase more inventory and more storage space in support of expanded sales. If you can efficiently manage an inventory of X size, the jump to 1.5X or 2X should not present insurmountable problems, and in return you can expand your sales revenues without a proportional increase in operational costs, due to economies of scale. Contact IOU Financial to arrange an inventory loan and watch your bottom line grow!


Extra Inventory From the Holidays? 6 Ways to Use it Now and Plan for Next Year’s Product

Holiday sales for any business can have a major impact on how the next year begins. Anticipating for the rush can sometimes leave small and big business with excess inventory and decisions to make with what to do with it now, as well as what to do next year to avoid over-ordering. By following some simple steps, businesses can learn what to do with their current inventory excess and how to better plan for the next season’s holiday rush.  Paying attention to 6 key ways to use extra inventory can keep any business in the black.

Save It: Sure sounds easy and simple. Almost too simple. But if your product or business is in a position to hang onto the inventory for the following year, or for another time to sell, then try and store it. It may be wise to save it for a rainy day.

  • Next Year: Try and use some inventory from this season for the next if the product can withstand a year of consumer shift. Order less of the “new” next year and mix in current with latest product on the shelves.

Sell as “Bundled” Package Deals: Consumers love great products and they love feeling like they are getting a steal of a deal. So, if you can, bundle some of the extra products into a “package” deal for a limited time offer. Combine items and lower the cost per item for a nice price point and great bundled offer. Consumers will benefit from a “deal” and you will move more than one product off the shelves.

  • Next Year: Start by selling bundled deals from “last season” next to the latest product at a slightly higher price. Consumers may not buy the new product but will quick to grab the “last season” product at a sale price.

Offer Discounts Next Year: Who doesn’t love a deal? So, why not offer a double win for a consumer? Offer your product with the added benefit of an automatic discount on ANY item or product the next season. Consumers like to know they will get something now and like even more the idea of added benefit the next year. If your product is one that consistently is updated, the offer alone will create some buzz for this and years to come.

  • Next Year: Consider how many products were sold with the current offer and the offer for the following year when you go to place new inventory orders. By looking at how many consumers purchased that deal this year, you can better assess how much you will need.

Create Promotions: Current products make great promotional items. Offer consumers a “free” product with purchase of another. If the product is one that can go well with other purchases or even be used as a promotional item at an event, raffle, give –away, and beyond, then the price you “eat” may be good for future business and getting your unused product in the market. Promotions are a solid way to grow your brand and product.

  • Next Year:  Factor in any promotional items you may use and reduce purchasing any promotional items this year. Use what you have and refrain from ordering any other marketing or promotional items if you have inventory on hand.

Slash Prices: Sales sell goods. If you can offer a great discount and cut prices on your products, it’s a great way to get buyers to take your extra inventory. Think about all the extra holiday lights, artificial trees, and snowman wrapping paper that go on sale the day after Christmas. Jump on the price slashing bandwagon and throw one heck of a holiday deal.

  • Next Year: Anticipate this tactic and use to your advantage. See what goes the fastest once you slash the prices and consider the profit made from this. If it’s a good solid money maker, ordering a little extra for this same reason next year may be a good move.

Inventory Liquidator: Not the first choice by any stretch, but if you find yourself in a major pickle then go with a liquidation service-but be cautious. Be aware of the risks to your product integrity and brand name. For some this is a last resort option but if you need to move a lot and reduce the bleeding this may be an option to consider.

  • Next Year: Run the numbers of this years liquidation and forecasted sales to see if you can withstand this same hit the following year. If it’s too close to call, order less and start to consider ideas for back order deals or offers.

Business owners know the ups and downs of planning for the holidays and strategic planning of ordering inventory. However when that inventory doesn’t sell in the current year, the worry and stress to move that product rises. By implementing the above 6 ways to use that extra inventory now and plan for next year’s product, business owners can tackle the holiday rush with a smile and game plan.  Nobody said Santa Claus couldn’t come to town all season long.

4 Ways to Get an Organized Auto-Body Shop

Running an auto shop may seem pretty straightforward: cars come in, they get fixed, and cars go out. As simple as that sounds, there are more things to consider when turning those logistics into profits. One main consideration should be keeping your shop organized. Keeping your shop organized is not only good for the presentation and usability of an auto shop, it can be extremely beneficial to a shop’s efficiency and bottom line. In this post we will reveal the 4 ways to keep your auto-body shop organized and review why it’s important. Lets get started!


  1. Have a plan of where things go

The first place to start is in reviewing the current floor plan of your shop and outlining where you’d like things to go. Review what tools and equipment you have and place them in and around the area that makes the most sense. Map out the plan and outline how you want things to be placed. Keeping a clear layout and plan of where things go will help you get things in place and assist in keeping them there for years to come.

Why it’s important: By organizing the layout of your shop you can increase efficiency of staff accessing tools based on what services are done where and how tool placement can be strategically placed for less wasted steps around the shop! Keeping these objects in their place will reduce injury, and prevent equipment damage in day-to-day operations.


  1. Clean up at the end of each day

We all fall into the trap of “I will get to it later.” While our intentions are good, we often fall short and things we “should have” done turn into “never gets” done. Commit to cleaning the shop at the end of the day, put tools back in their places, and do not turn the lights off without everything being in order.

Why it’s important: Reducing the time it takes when opening the shop to find tools used the day before or tools blocking the flow of the workspace for staff will increase efficiency and reduce wasted time searching for parts, tools, or other needed materials at the start of a busy day.


  1. Review plans with your staff

What good is a plan if nobody knows it is in motion? If a shop is organized, the staff needs to know that the plan is in play. Sharing the plans with staff, what is expected, and where the tools and equipment are to return (by the end of work day) will help keep the shop organized on every day that ends in “y.” Don’t assume because tires are located in the “general tire area” that staff know they should also end back up there at the end of the day.

Why it’s important: In order to successfully execute any plan, communication is key. Keeping the well-outlined plans a secret mean you are the only one that will know where each piece of equipment goes, leaving you with cleanup at the end of each day.


  1. Label clearly

When starting an organized shop, one must consider labeling what tools you want to go where. Clearly label the sections for certain tools, the areas designated for larger equipment, and do not think any sign is too obvious. Be clear and exact with the labels so there is no question if the image used for screwdrivers is not interpreted as tire pressure gauges.

Why it’s important: Miss labeling will increase confusion of what goes where, thus increasing the time it takes to find a simple tool and decrease the time your staff are being paid to use it.


When it comes to organizing an auto body shop, the above 4 steps can be simple ways to start developing a well laid out plan for shops big and small. Understand the value and importance of shop organization is critical in adhering to those well laid out plans and steps towards maintaining not only the best shop in town but the most organized too!

If upgrading software, POS or other systems will help keep your shop organized, consider a small business loan from IOU Financial. You can receive working capital to streamline your operations in just 24 hours!

6 Ways Overstocking Costs Your Small Business

When you are running a small business money is often tight. Companies need to make sure they allocate their cash strategically, because too much spending in one area can cause shortfalls in others.

One costly mistake can be overstocking inventory and materials. In a merchandising company, inventory represents the goods that will be sold. For a manufacturing company, overstocking can result from buying too many raw materials and components. In either case, overstocking can create several unwanted costs that can overwhelm the savings that comes from buying in bulk:

  1. Storage costs: When you have a large amount of inventory or raw goods on hand, you need sufficient space to hold the materials. That translates into leasing, buying or building storage facilities and warehouses, which must be secured, powered, insured and staffed. If you create additional warehouse space, you might see an increase in your transportation costs as well.
  2. Deterioration: Many things can go wrong when you have an overstocked warehouse. Often times, your merchandise and raw materials wait longer before they are removed for use. This is a critical problem for items that can spoil, such as foodstuffs, agricultural goods, pharmaceuticals and anything with an expiration date. In addition, every time an item must be moved, it is subject to damage that can ruin its value. Overstocking items can result in additional movements and staging that can lead to wastage.
  3. Shrinkage: The more materials your small business keeps on hand, the harder it is to guard it all. It’s easier for a worker to steal an item when it’s one of many, since its loss is harder to recognize. To help prevent shrinkage, you will have to spend extra money on security precautions. Any way you slice it, shrinkage is costly.
  4. Obsolescence: You might get a great deal on a huge order of some item, only to find out that it has gone out of style before you can sell off your excess inventory. Fads come and go, and the public can be fickle. Furthermore, you don’t want to get stuck with an item when a new, improved version is announced that makes your current inventory obsolete.
  5. Economic downturn: A recession can happen at any time, and with it a downturn in demand. They last thing you want is to be stuck with too many raw materials just as you cut back on production. That’s exactly what can happen if you buy too much at one time. Overstocking is the enemy of just-in-time manufacturing, which is the best way to keep your production in sync with demand.
  6. Unbalanced spending: Overstocking means over-allocating working capital to inventory and raw goods. You then might find yourself short of funds to finance the purchase of equipment, facilities and other capital goods, as well as to pay other expenses and liabilities. For example, you might order extra raw goods in anticipation of increasing production, and then realize you’ll need more trucks to transport the goods. If you can’t afford to buy the trucks you’ll need, your extra raw goods won’t increase production, but they will boost costs.

Sometimes, it does make sense to buy in unusually large amounts, such as when you are certain that all of the purchases can be used quickly to increase sales. If you find yourself short on working capital but want to take advantage of a great deal from a supplier, contact IOU Financial for a quick and easy commercial loan to tide your business over until you turn your purchases into sales.

Maximizing Profits With Better Inventory Management

How Inventory Management Can Make or Break Your Small Business

All small businesses are focused on driving sales in order to boost revenue, but businesses that sell goods rather than services have the unique challenge of managing their inventory in a way that maximizes their profits. Small business owners rely heavily on the profitable sale of inventory to grow and stay in business. Gross margin — the difference between an item’s selling price and its acquisition cost — can be affected by several factors, both internal and external. How a business owner thinks about and handles inventory decisions and accounting can affect the bottom line, and it involves more than just deciding what to buy and when. Here are four of the most important factors related to inventory management:

  1. Economic Environment: It’s always wise to run a tight ship, but never more so than when the economy slows down. When sales slow down due to the economy, a “tight ship” means buying or making only enough inventory that can be sold in a relatively short time period. If the economy turns inflationary (costs of goods increase faster than expected), consider talking to your accountant about “LIFO” inventory management. Using a last-in, first-out inventory costing approach allows your cost of goods sold to mirror the most recent inflationary price hikes. This can benefit your business because it can lower your taxable income and income taxes.
  2. Market Environment: Today’s taste may be tomorrow’s waste — that’s the way it can go with a fickle consumer base. When some of your inventory goes out of style, your best move is often to mark down prices and take an accounting loss. The result is you restate your inventory value at the lower of cost or market, which in this case is market value. The benefit to your business by doing so, is that it boosts your COGS (cost of goods sold) and thereby cuts your annual taxable income — or even hands you a net loss for the year. Either way, it reduces your tax bill. You might have to write off inventory because of external factors like product recalls, boycotts, obsolescence, bad publicity and tariffs, to name a few.
  3. Shrinkage: Shrinkage – no, we’re not referring to George Costanza here — theft, spoilage, damage, short shipments, misplacement are all big enemies of profits. Fight back with cycle counting, in which you perform a daily physical count of a different part of your inventory. Repeat the cycle until you’ve surveyed all of your inventory, then begin again. The advantage is that you’ll detect shrinkage much sooner than if you had waited until the end of the year to perform an inventory check. The sooner you discover a problem, the sooner you can address it. If you uncover an issue, some potential ways to address it include adjusting your storage and security procedures, changing management or security personnel, finding new suppliers, or at worst, fire a dishonest employee.
  4. Inventory Tracking: Even if you’re running a small business, you can still consider automating your inventory tracking from inception to sale. High-tech features such as bar code scanners and radio frequency guns can track all movements of your stock items, allowing you to establish a perpetual inventory system saving you buckets of time that can be invested elsewhere to grow your business. Making investments in inventory tracking pay off with timely, accurate information about goods on hand and COGS. You also might be able to delay or reduce time spent on physical inventory counts. To maximize your benefit, take the extra step to integrate the information into your accounting and procurement systems.


Just remember, inventory management is all about maintaining and maximizing your margins. Being mindful of your economic or market environment can help you plan ahead, and implementing proper tracking can help you use all your inventory to its full potential.

Would additional working capital help you optimize your inventory management? IOU Financial is here to help. We offer business loans up to $150,000 that allow you to keep the right amount of inventory you need on hand, and establish the tracking you need to manage it effectively.