The Financial Impact of Inventory: How Inventory Shapes Your Business's Bottom Line

0:06 Brittany Brown

So make sure you mark this on your calendar, save the dates for this. Today, February 19th, is the first part of this. March 5th will be the second part, and March 19th will be the third part. So make sure you save the date and participate in all three of these. It's going to be really worth your time.

0:31 Brittany Brown

So let me go ahead and introduce our speakers for today. There are going to be four of us that you'll hear from.

We will have me, I'm the CEO of LedgerGurus. Karlie, she leads our inventory practice. Madison, who is the Partner Program Manager over at Finale. And Tamara, who's the Director of Sales and Strategic Accounts at Finale Inventory.

0:57 Brittany Brown

Actually, you guys go up one slide. I neglected to really introduce this particular session.

So this particular session will be on the financial impact of inventory. As you guys know, if you don't already know this, it's a super important concept for you guys to understand that inventory is primarily an operational problem with financial impact.

1:15 Brittany Brown

So today we're really going to go deep on studying the framework to help you guys get successful, by really going into seeing how inventory shapes your business's bottom line, and really understanding how all the parts and pieces of that come together.

1:28 Brittany Brown

So let's jump to the agenda so you guys know what to expect.

Oh, looks like we're doing a poll first. So let's start here with this poll. Just tell us a little bit about who you are, so we kind of understand the audience that we're talking to today, and we can make sure that we are specifically aware of what your specific needs are likely to be. So if you guys will go ahead and just take a moment to answer this poll question.

2:09 Brittany Brown

One of the things I think is interesting about these particular poll questions is it makes it pretty obvious that within the ecommerce inventory space, you're really going to fall on one of two sides of this. You're either going to be a business who's experiencing these problems, or you're going to be an accountant who's supporting clients experiencing these problems. But at the end of the day we all feel the same pain and we all have the same issues, we're just coming at it from different perspectives.

2:33 Brittany Brown

All right, here's the poll results, that's fun. So most of you guys work in an ecommerce business in a role other than, I don't know what the other than is on that, I'm guessing other than accounting. Then you either own a consumer products business. Looks like those are the two most common.

2:59 Brittany Brown

So a little bit about LedgerGurus. We are experts in ecommerce accounting. We have many years of experience with tracking inventory and COGS tracking. And when I say this, I mean we are battle wounded. We have either cried on behalf of our clients, or cried because of our clients. This is definitely a space that we've lived in for a very long time.

3:19 Brittany Brown

We also go very deep on sales tax compliance. We're primarily an accounting firm that focuses on ecommerce businesses, which means everything that touches ecommerce businesses, LedgerGurus goes very deep on.

We're very big on profit driven financial strategies, helping create visibility into maximising your marketing ROI, and we're really trying to help clients build for ecommerce success as businesses.

3:41 Brittany Brown

I'm going to turn over to Tamara to talk about Finale.

3:45 Tamara Miller

Thanks so much, Brittany. And Finale Inventory heard those cries.

So we're both an operational and financial tool, and we're designed to eliminate inventory chaos. Since 2009 we've actually helped thousands of businesses take control of stock, streamline operations, and really scale without limits across multiple selling platforms like Amazon FBA, Shopify, Walmart, Etsy, just so many of them, too many to actually name here.

4:10 Tamara Miller

We actually give businesses the power to grow without inventory and operations slowing them down, with tons of automation and tools that really are powered by real-time visibility.

4:23 Brittany Brown

Thank you, Tamara.

So as we go into the agenda, there's something I need you guys to just understand, and that is that this particular group of people who put together this webinar today were very intent on actually adding value to the audience. So this is not going to be a salesy webinar. We're really going to be identifying problems and talking about solutions, and really helping you guys in this particular webinar. Because remember, it's the first of a three part series, to really begin to formulate the picture of all the pieces that come together.

4:48 Brittany Brown

One of the things Tamara talked about as we were coming into this is the disconnect that they see, being on the tool side, of people who are taking each of these processes that we're going to be talking about, purchasing, tracking, selling, in isolation, instead of being able to see the whole complete cohesive picture. The problems that are caused by this disconnect, and really reiterating the point that good operations leads to good accounting.

5:16 Brittany Brown

So with that in mind, we're going to be introducing inventory operations and how it flows into accounting, really going into problems and solutions of purchasing, tracking and selling processes. And then really talking about the big question, which is, am I ready, is this the right time, and when is the right time to consider an IMS, which stands for inventory management solution.

5:33 Brittany Brown

And with that we'll kick it off to the actual content.

5:39 The inventory cycle

Karlie Lester

Thanks, Brittany. I'm so excited to be here, especially with Finale, our great partner. We're both very passionate about helping our clients with those inventory frustrations.

5:50 Karlie Lester

We'd say 99% of the clients that come to us, one of their biggest pain points is inventory. They say things like, I just don't know how to manage my quantities. I don't know when to reorder. I don't know what my product costs are, or even how to calculate that. What are COGS? I don't know what COGS are. How does inventory and COGS flow through my financials? I don't even know what I'm doing with it. Just major frustrations.

6:15 Karlie Lester

And so we try to help them at the beginning. When you think of inventory accounting, we help them recognise what their biggest asset is, inventory, and how we're going to track that in the financials using COGS.

6:22 Karlie Lester

But a lot of their pain points are operational things, like managing quantities. What's my inflow of inventory, what's my outflow, managing that, when do I need to reorder. And it can get so frustrating if they're trying to use several spreadsheets, they have one person doing purchasing, one doing sales, they're not communicating well.

6:47 Karlie Lester

When they start off a small business, they have one product, one sales channel, it's pretty easy. And as it starts to scale it gets more frustrating and more frustrating.

And so our hope is to help them identify those operational processes so they can really become more efficient, and that will translate into better inventory accounting.

7:06 Tamara Miller

Thanks so much for that, Karlie. I think that was literally the perfect setup for really understanding, or walking into, this series.

7:20 Tamara Miller

I think that in order for us to really, before we even dig into the chaos, we want to start with really understanding what an inventory cycle is, because there are a lot of misperceptions that we have about this entire process.

7:33 Tamara Miller

And if you'll just bear with me for a moment, I really like to relate the various different areas that we're talking about today with stories, based on some things that I've actually experienced with speaking to so many customers, current customers, but also former business owners.

7:53 Tamara Miller

So let's just say that you just purchased a shipment of, ship stations, PlayStations, for your online store. Huge win. But here's where things can really get tricky.

If you don't track your inventory properly, you can actually oversell, and we all know that that leaves customers angry. Or you could just essentially be sitting on extra stock that we're not really selling, and as Karlie mentioned a moment ago, that's an asset, and so now that means that we're draining our cash.

8:30 Tamara Miller

Orders could be flying in, but one of the questions that you always have to ask yourself is, are we making money? And if you don't know your cost, you might be selling at a loss.

8:40 Tamara Miller

Inventory, simply put, is a cycle. If you're tracking it right, your business is going to thrive. And if you track it wrong, your cash flow is actually going to suffer.

8:54 Tamara Miller

So I think that the most important thing for us to really understand here is, let's talk about making money. I mean, that's ultimately what I think that poll showed, that there were about 30% or 40% who were actually business owners.

9:08 Tamara Miller

Inventory isn't just about having products to sell, it's actually about making sure you're turning a profit. And Sam, if we can go to the next screen, we'll be able to take a look at that.

9:15 Tamara Miller

So what's the solution? It's actually proper inventory accounting.

You need to be able to track every dollar. That means what you're buying, what you're selling, and also what's left, so that you can make some well informed decisions.

9:32 Tamara Miller

And this cycle isn't just about keeping stock organised, it's about making sure that your business stays profitable. With the right systems in place you can adjust your purchases and sales based on real data, and this keeps cash flowing and ultimately your business growing.

9:45 Tamara Miller

And this is why inventory isn't just an operations problem, it's a financial one. You want to be able to track it so that your business doesn't just survive. You're giving it the best opportunity to scale and grow.

10:04 Purchasing chaos

Madison

Well thank you, Tamara, for that. That goes straight into purchasing, kind of that first step in the inventory process.

10:10 Madison

And let's be honest, how many of us on this call are still using spreadsheets or some kind of manual system to track our purchasing? No shame in it, we see this all the time.

At first it might seem like a simple cost effective solution. You plug in some numbers, track your stock, it feels like you've got things under control.

10:27 Madison

But then things start slipping. So maybe one day you realise you're out of stock of a bestseller because no one noticed stock was running low. Or maybe the opposite happens, and you accidentally order way too much, and now you've got shelves packed with inventory that's just sitting there and tying up the cash flow.

10:44 Madison

And these are just the beginning. When purchasing isn't streamlined, your business is unsure of what to restock. Without a clear system you easily miss your key inventory needs. Lead times can catch you off guard. You think something's going to arrive in two weeks, but then it takes two months. Overstocking and stockouts happen.

11:04 Madison

So either way, you're costing your business, either tying up funds or wasting funds on things that could have been spent on inventory that actually sells.

11:11 Madison

And orders getting lost in the chaos, product costs unclear. So not being sure of how much you're paying for your product costs, including that true product cost, which is the fees and the duties and the things that go into actually purchasing the product. Not knowing these things really inhibits your ability to track profitability and make good decisions.

11:36 Madison

So as you can see, relying on manual processes alone creates more problems than solutions. But good news, there is a better way to handle this. Thank you, Sam.

11:47 Madison

So, from chaos to control. We just talked about the chaos that happens when you rely on spreadsheets and manual tracking. Stressful, time consuming, and honestly just not really sustainable as your business grows.

11:55 Madison

So what do we do as a solution? Instead of reacting to problems as they happen, we can take control with a centralised tool like Finale that helps keep everything in sync, real time across your channels. No more scrambling to find purchase orders. No more checking that gigantic spreadsheet trying to see how many you ordered last month. You'll have all that data in one place working for you.

12:20 Madison

So what a proactive purchasing system actually does is keep all your purchase orders in one spot. No more digging through five PDFs trying to figure out what you ordered, when, what date, how many. None of that anymore.

12:36 Madison

Managing all your purchases, so if you're buying goods from 10 suppliers, one supplier, if you're buying finished goods or raw materials, all of those orders can be maintained in one streamlined system, keeping everything cohesive.

12:49 Madison

And this also gives you accurate cost calculations, so you're not surprised by hidden fees or unexpected expenses. And this costing includes every cost, like I was saying before. So shipping costs, landed costs, everything gets factored in, so you know your true inventory costs.

13:05 Madison

And additionally, helping with shrinkage. So you've got lost or damaged goods. Things get shipped to you from your supplier, they arrive damaged, now you can actually monitor them and account for them and write them off when you need to.

13:22 Madison

And then again, syncing everything in real time, so no more outdated spreadsheets, your data is updated instantly.

13:27 Madison

And basically this kind of tool takes the guesswork out of purchasing. You're not just reacting anymore. You're making smart, data driven decisions to help your business grow, improve cash flow, and keep those customers happy, which is always the goal.

13:47 Tracking chaos

Karlie Lester

And as Madison stated, a lot of people are still trying to track inventory manually in spreadsheets, and a lot of times it's several spreadsheets or several systems or several softwares.

13:53 Karlie Lester

But if we can use a centralised one, it can help as we think of inventory inflows and inventory outflows, and needing to track all of those. So the inventory coming in from purchasing, the inventory going out from your sales and damaged goods and things like that.

14:13 Karlie Lester

When we're not centralised, we're using lots of different systems, you're missing inventory. Maybe you're not tracking the damaged goods, or things going out for marketing, so you're missing it.

14:19 Karlie Lester

You have inaccurate counts. You're going in to do counts, you're putting in the stock take, but it's not feeding to other systems for a long time, so you're missing things.

14:31 Karlie Lester

Lost returns. Returns come in, but you're not looking at them and deciding what goes back into the inventory system. It's just kind of lost, or maybe you're not even tracking them at all, or someone else is tracking them and it doesn't get to you.

14:43 Karlie Lester

Untracked stock. Again, stock out there that you're not tracking. Maybe someone goes into the warehouse and pulls a bunch of things for a big marketing event, and it doesn't let you know, so we don't put it in the system, and so that's untracked.

14:54 Karlie Lester

No clear warehouse processes. There's the warehouse, there's no process of where is it organised, where is it at, how can we pick pack it efficiently, how when the purchases come in do we get it put away, how much time is it taking us to put it away and pick and pack.

15:15 Karlie Lester

Manual overload, and that talks again about trying to use all these different spreadsheets.

The time consuming inventory count. Your accountant says, at the end of the year I need you to do a physical count, and you've got stuff all over in a million different places and it takes days, you've got to shut down. So the manual overload can be very chaotic for people.

15:34 Karlie Lester

Disorganised storage. If you've got inventory in lots of different locations and you're trying to figure out what's where, that can be very chaotic.

15:46 Karlie Lester

You guys, I love our little guy that's just wanting to [unclear].

15:49 Karlie Lester

Duplicate SKUs. Think of this, this is very chaotic for people if they're purchasing under one SKU but then they have a different SKU for each sales channel, and they're trying to track it and they're trying to do counts, and they've got different SKUs for different inventory. Can be very chaotic.

16:06 Karlie Lester

You've got those blind spots, meaning we're really only tracking stuff weekly because we don't have enough people. So you've got a week where you're not really tracking it. But if you can do it real time it can really help with those blind spots.

16:17 Karlie Lester

And those higher holding costs. You've got all this inventory, you ordered it, you thought you needed it, it didn't sell, now you're paying this warehouse cost. Or you don't realise you're not selling it, so you don't know when to write it off, so it sits there, so you're paying all these costs that you don't need to. Very chaotic.

16:38 Karlie Lester

So a little pop quiz or poll for you. Let us know which one you are struggling with the most.

16:49 Karlie Lester

And so, streamlining this. If we can move from those manual processes and help people get into one centralised, real-time system, it can provide accuracy and efficiency.

16:55 Karlie Lester

So you know your inventory value at any time. You can look at the quantity on hand, your system is calculating a good cost, so that quantity times your cost is giving you a good inventory value, and you know what the value of your biggest asset is.

17:12 Karlie Lester

You're tracking all those inflows and outflows that we talked about. All the purchases are coming in, as Madison said, that nice purchasing process, and knowing it all in one place. But you're also tracking all the outflows. A lot of our clients are really good about tracking sales, things that are going out that they're getting revenue for, but they forget about all those other reasons that inventory leaves the warehouse, and this helps you track it.

17:30 Karlie Lester

Refining those product cost calculations. It can be hard manually trying to determine your product cost, and then even thinking, well, what is in my product cost? Am I just using the cost from my vendor that I bought it for, or do I want to land a bunch of things like shipping and taxes? And systems like an IMS can calculate all that for you on a real time basis.

17:56 Karlie Lester

Using a structured physical count method regularly. You'd be surprised how many of our clients don't do regular inventory counts. So at least annually, if there can be cycle counting, or you're doing it quarterly, and coming up with a good process of counting your inventory and then checking it against your 3PLs or your IMS.

18:09 Karlie Lester

Setting reorder points. A nice thing about the system, you can have reorder points set based on sales velocity, which I love about a lot of our systems. But if you know your set reorder points, you can put them in the system and it lets you know you need to reorder. So it takes a lot of the chaos out of tracking.

18:32 Karlie Lester

And then of course the streamlining of pick packing and shipping. If we think about how much time it takes for employees to go through the warehouse and pick all the inventory and get ready to pack, if we can take that cost down and the time down, it will help us financially and be more profitable.

18:44 Karlie Lester

And one way to do that is using a barcoder. Whether you're doing some type of batch picking or wave picking, using a scanner can really organise the time to get through the warehouse and cut those costs.

18:57 Karlie Lester

So the next slide's going to show you a little video of a barcoder that's super cool, and then we'll look at our chaos around selling.

19:11 Madison

Look at her go. And this video is efficiency in motion. She is doing the wave pick method. So instead of running back and forth throughout the warehouse grabbing one order at a time, she's able to load up this cart, load up her orders, and go through the warehouse with a directed picking method, picking multiple items for orders all at one time.

19:34 Madison

So with the right IMS, wave picking can help streamline operations, making picking and packing more efficient, and reducing errors and time, most importantly.

19:50 Selling chaos

Tamara Miller

Yes, wonderful. Well, you heard Madison talk about the purchasing chaos and a solution to that, and Karlie even talked about the tracking chaos and a solution to that. But what about the selling chaos?

20:02 Tamara Miller

Many times when I'm speaking to businesses, one of the first things that I ask them is, talk to me about your pain points, tell me about your challenges.

20:14 Tamara Miller

And it's funny, because most businesses, when they come to a Finale for instance, one of the things that they say is, hey, we thought our business was thriving. Orders were pouring in from Amazon, from Shopify, eBay, and on the surface everything looked great.

20:32 Tamara Miller

But behind the scenes there was a totally different story. Operationally they were learning that they were waking up to frantic emails, orders were being cancelled because they sold items that weren't actually in stock.

20:44 Tamara Miller

And the immediate reaction, nine times out of ten, in order to prevent that, is, why don't we just stock up? Why don't we fill the warehouse with products so that we can make sure we are able to fulfil those orders? But then what they were learning on the back end is, they were tying up cash.

21:03 Tamara Miller

And then on top of that, things were getting more complicated. Because if you are a seller who is selling multiple kits and bundles, then that means that we're needing to pull multiple SKUs from that single sale, and manually tracking it is not always efficient. It just doesn't track it properly.

21:26 Tamara Miller

And then meanwhile we get into that issue surrounding calculating costs, which really becomes a guessing game. In many of those conversations we're realising that there's not really a clear picture of what the business is actually making, which means there's no idea of what the profitability is.

21:46 Tamara Miller

In short, this is really just selling chaos. It's not about losing sales, it's really about losing control. Because instead of running the business you're constantly reacting, you're scrambling to fix inventory problems, and they're seemingly never ending.

22:06 Tamara Miller

And what we try to think about is, well, how can we optimise that? What is the solution to fixing all of those issues? And it's really about taking that control back.

22:17 Tamara Miller

You want to be able to see every sale in real time across every selling channel, and you want to see it in one place. You don't want to have to bounce back and forth from one solution to the next, or one spreadsheet to the next.

22:29 Tamara Miller

If you're not guessing, you're not overselling. You know exactly what's in stock. And instead of manually tracking your cost, every expense is automatically recorded. Again, we talked about that before with the purchasing.

22:41 Tamara Miller

And you'll see this poll that just popped up, because we want to know what's the biggest selling headache that you actually have. So if you'll take a moment to answer that, that would be great.

22:54 Tamara Miller

Because we already have our expenses in one solution, and we're automatically recording that, when we see that sale we're now able to also calculate your cost of goods sold. And so now we're able to see your margins more clearly, and you can see exactly what you're making on every sale.

23:12 Tamara Miller

And even as it relates to those kits and bundles themselves, that's no longer an issue, because inventory is being deducted correctly across multiple SKUs. So that prevents that overselling, and it also eliminates that manual tracking.

23:31 Tamara Miller

So when stock levels are always accurate in your warehouses, you aren't stuck reacting to inventory issues. That then gives us the ability to accurately forecast your inventory demand. So what do we need based on the actual selling activity itself?

23:47 Tamara Miller

And an automated solution allows you to establish those reorder points based on that sales activity, so that you can prevent those stockouts before they happen, but we're not tying up our liquidity with stock that we don't even need. So it's just a much more well informed decision.

23:59 Tamara Miller

But there's an even bigger change that I always like to hone in on. Businesses can stop playing catch up and start making smarter decisions. Instead of fixing mistakes, you can finally focus on growing your business.

24:20 Tamara Miller

And again, I just kind of take this back to, at the end of the day, inventory is not just about what you're selling. It's about making sure you're profitable, you're making money, and it makes sense to continue to procure that stock.

24:35 Karlie Lester

In a nutshell, I love how Tamara talked about, if you can spend less time dealing with all these issues and tracking them, letting it automate through a system, and spend more time trying to figure out what your business needs, that's so great.

24:53 Karlie Lester

So if we talk about how operations shape inventory accounting, we think about using a centralised automated system and how that can flow into our financials.

24:59 Karlie Lester

If we're using a centralised system for purchasing, which then creates those bills that sync into our financials as accounts payable. And then we're tracking our quantities on hand, our system is tracking those inflows and outflows, it is calculating that costing so we can get a really good value, and that too is flowing into our financials.

25:23 Karlie Lester

If we have good operational processes around sales, then we have our revenue and our cost of inventory that's shipped. Something's tracking everything that's shipping and has those good costs and calculates that COGS, then that will flow into our financials as well.

25:41 Karlie Lester

And I was actually going to see if Brittany has something to add on that. Anything, Brittany? I'm kind of putting her on the spot, but she is our CEO.

25:52 Brittany Brown

I just realised I was muted.

Yes. So as an accountant we think a lot about the mapping of these activities. And as we've gotten really deep on inventory we've learned more and more about the way that activity X translates into financial value Y.

26:12 Brittany Brown

And it's something that I think anyone who's engaged in inventory needs to understand, that an inventory system, inventory tracking, anything around inventory, is fundamentally an accounting process. And that almost every single thing that passes through, from like Karlie said, from the point at which we order to the point at which we track to the point at which it sells to the point at which it's shipped, every single one of those has a financial implication to that process.

26:35 Brittany Brown

And really understanding how that's true, and where those crossover points are, will help you be more successful if you are the brand owner, and will help you help your clients be more successful if you're the accountant that's supporting those brand owners.

26:49 Karlie Lester

Yeah, like all those operational activities do translate into a financial transaction. And a lot of times when clients are doing it manually, they don't think to tell the accountant, oh, by the way, we gave this inventory away for this.

27:02 Karlie Lester

But if it's flowing through the system and it's connected, and the accountant knows what's happening, it's mapping or it's pulling the information it needs, then we capture all that inventory activity that we need financially.

27:14 Brittany Brown

Yeah, the by the way is our favourite. The by the way I added a new sales channel. By the way I'm now doing wholesale. By the way I just launched a whole new series of products that I didn't even bother to mention. By the way we're significantly changing the way we track our cost.

27:34 Brittany Brown

That's our favourite. The by the way is like now a trauma trigger for me.

27:41 Karlie Lester

Yeah. But if they use a system, now we can say, hey, I noticed you added.

27:49 Brittany Brown

Noticed, exactly. There's a process and it works.

28:00 When to implement an IMS

Madison

So when is the right time to implement an IMS?

I'm sure you guys remember the first days of starting your business. You were getting a couple of orders here and there, managing a few SKUs, maybe it wasn't so hard to keep track of.

28:11 Madison

And then we fast forward to present day. You've got orders coming in every direction, [unclear], and the time starts to come where you start looking for a system to connect all these moving parts.

28:23 Madison

So how do you know when it's time to upgrade to an inventory management system? I mean, to be honest, if you're asking yourself that question you're probably already feeling those pains, so it might be a good time.

28:36 Madison

But maybe your orders are piling in faster than you can process them, you're constantly playing catch up. Or maybe your stock levels are all over the place, sometimes you have way too much or way too little, you're sold out, scrambling to restock.

28:47 Madison

Your operations might be feeling inefficient, like you're doing a ton of manual work just trying to keep things moving. And scaling, it's kind of hard to even think about scaling when you're too busy spending all your time fixing inventory issues instead of focusing on expansion.

29:04 Madison

And then there's the customer side. If they're frustrated, they're getting delayed orders, seeing out of stock messages too often, it's a red flag to them. And let's not even start to try to manage multiple sales channels without a centralised tool, it's definitely a nightmare.

29:22 Madison

So if any of these kinds of issues sound familiar to you, it's probably time to invest in an IMS that brings everything together, so you could stop reacting to problems and start running your business proactively.

29:34 Tamara Miller

And Madison, can I just throw something else in there? Because one of the things that I think we're beginning to see more and more is, as sellers are beginning to sell on more platforms, there are more rules, and the rules are different from one selling channel to the next.

29:53 Tamara Miller

And so if you're competing for that buy box, or if there's a certain amount of stock and you are below that threshold, there are also penalties that can be assessed financially if you're not keeping enough stock on hand.

30:06 Tamara Miller

And so another good reason to actually look at implementing a solution is, hey, we want to make sure that we're still competing. I want that buy box, or I want to make sure that Amazon FBA for instance has the adequate amount of stock and I'm not being dinged because I don't even know when I need to send them another shipment.

30:31 Tamara Miller

Every reason and example that Madison gave is great, but just as you're thinking about expanding, or even if you're on some of those current platforms today, it gives you the ability to be empowered to do even more. Because you have that informed confidence surrounding, when should I purchase more stock, when should I procure it, when should I bring it in, and what's the quantity that I need at those designated selling channels themselves?

31:09 Brittany Brown

Can I add one thing to this slide also? Because this is very focused on the operational side. So from an accounting side, when do you know is the right time to implement an IMS? What are the triggers?

31:21 Brittany Brown

These are the questions we hear our clients say all the time, who come to us during the sales process, where the immediate thing we do is make an introduction to one of our partners like Finale. The things they say are, I have no idea what the value of my inventory is. I have no idea what the cost of goods sold is. I have no idea whether I'm profitable or not. I'm operating completely blind financially.

31:39 Brittany Brown

So those are the things they're saying to us from a financial perspective. So if any of those things are true for you, whether you're dealing with the operational side of things where there's true chaos, or whether you have complete lack of visibility into the financial side because you just don't have a handle on what's happening financially, those are usually pretty good triggers to start to consider this as a significant advantage to levelling up as an organisation.

32:00 Brittany Brown

We call it the maturity spectrum. It's not necessarily the move for a little business who's trying to figure out how to optimise their marketing, to really put in the time and effort into mastering an IMS. But as an organisation grows, there are operational and financial problems that become major gaps, where this becomes the bottleneck to growth and progress.

32:19 Brittany Brown

And when you hit that point, let me just say right now, moving to NetSuite is not the move. They will tell you you should move to NetSuite, but in reality what you really need is an IMS. That's the point at which you know it's time to mature in that way, is when all of these things begin to be true for you.

32:43 Integration and questions

Madison

Thank you, Brittany and Tamara, for adding additional colour, that's awesome.

But on to the benefits of integrating Finale and QuickBooks. So I'm going to be biased, I would say my favourite benefit of Finale and QuickBooks is the time saving aspect.

32:56 Madison

With Finale integrated with your QuickBooks account, Finale is syncing this data from Finale to QuickBooks bidirectionally every five minutes. So you're creating a purchase order in Finale, it's syncing to QuickBooks within five minutes.

33:14 Madison

And that saves time for your accountant, your bookkeeper. For example, like Karlie, you don't need to tell her you created a purchase order for this supplier. She can go into your QuickBooks account and see that purchase order, and see if you created a bill, and see if you paid that bill. So all of that is easily integratable and seamless once you connect your IMS with your accounting solution.

33:38 Karlie Lester

And I know, Madison, there are accountants out there right now that see this and read it and are having an anxiety attack, like they've connected tools and it's made a mess and they don't understand what's happening, and it doesn't go as smooth as they thought.

33:54 Karlie Lester

Part of that is not understanding what the tool's going to do, or it's mapped incorrectly, so human error in the mapping and whatnot.

33:59 Karlie Lester

And one thing I love about Finale, I do have to say, is you can choose what syncs over or not. We have a lot of people that say, I really don't want to connect it, I've done that before with a tool and I don't want to go there again. But that's okay, don't feel like you have to connect. Even though it's one of my favourite things of Finale, that you can connect it.

34:19 Karlie Lester

Finale is still a huge benefit even if you don't connect it to your QBO or your accounting platform, because you can go in and pull the data you need for your financials, and it's accurate and true, and you're not wondering. So even if you're not going to connect it, the benefit of just using it is still huge.

34:43 Karlie Lester

And then the benefit for a lot of these tools is deciding how I want to connect it and only connecting certain pieces. A lot of people will only use an IMS for purchasing, or just for different sales. So being able to connect it and understanding how it connects is important, and realising even if you don't connect it, it's still a huge benefit to use a centralised IMS and keep your operations nice and clean.

35:08 Tamara Miller

Yeah, and if I can add one other part to that too, I just love the way that you phrase that, Karlie. Because one of the things that I tell many current customers, but even businesses that we're currently talking to right now, is that there are so many moving parts, countless moving parts, that they really require careful orchestration.

35:25 Tamara Miller

And that's one of the reasons why we work so closely with LedgerGurus, and we partner with them, because you really want to have that right expertise by your side. It makes all the difference.

35:39 Tamara Miller

Like Karlie said, really just knowing what to turn on versus what to turn off, what to connect or what to disconnect. There are so many different moving parts, and while it can definitely be a seamless process, just know that you don't have to go it alone.

36:00 Tamara Miller

And when you are ramping up, you have that operational side but you also have your financial side, and so just partnering with an inventory accounting expert makes all the difference.

36:12 Brittany Brown

And this has been one of the best parts about our partnership with Finale. When we partnered with other IMS solutions who didn't necessarily implement their own solutions, we were caught between the world of partners who didn't know the tool as deeply as the tool would have known the tool, and then the crossover into the accounting was something they weren't necessarily considering during the implementation.

36:36 Brittany Brown

So the partnership between Finale and LedgerGurus, we feel really good about the level of success our clients have been able to have during the implementation process, and then also over into the crossover into accounting.

36:48 Brittany Brown

And I want to bring up one question that came up in the Q&A, because it has to do with the integration.

The question was, does the integration, Finale plus QBO, is it complete in and of itself, or does it also need to have A2X added to sync an Amazon payout into QBO?

37:08 Tamara Miller

Great question. It can be a little bit of both. And so I'm going to answer part of that question and then I'm going to punt it over to Brittany and Karlie.

37:22 Tamara Miller

I think, really piggybacking on what Karlie said a moment ago, Finale has that ability to connect the way that you want it. And so with that having been said, you can choose what GL accounts you're going to be syncing into QuickBooks.

37:40 Tamara Miller

And so if you decide that you don't want to sync certain GL accounts into QuickBooks, then yes, you can use A2X. And again, there are preferences and best practices that I'm sure Brittany and the team will get into.

37:54 Tamara Miller

However, it is a full on solution if you want to essentially flow all of your AP and your AR through to QuickBooks from Finale, you can do that. But again, I think that our experts have some best practices as to what the preferred method is.

38:18 Karlie Lester

And Brittany, I'll start and then I'm going to punt it to you.

We do recommend, first on the sales side, for any type of wholesale that you're entering and that does have an AR component, that we do connect that to sync over into QuickBooks. But all of your sales that are ecommerce related, coming from your sales channels or platforms, we would not sync that over, and we would use something like A2X to do that. And why, go, Brittany.

38:47 Brittany Brown

Yeah. So I want to specifically talk about the pain point that A2X solves for, and when to introduce something like this into your workflow.

38:53 Brittany Brown

So while Finale will grab the sales and can sync it over, what A2X does is it fully reconciles the data that's coming over from sales channels with what you're actually seeing deposit into your bank account. And those of you who have tried to do this process manually know that this can be really tricky.

39:10 Brittany Brown

So if you allow A2X to be the syncing side of the sales, instead of something like Finale, then you also have the added advantage of that reconciliation process happening as well.

39:23 Brittany Brown

Because as you guys know, if Finale is syncing over the sales and A2X is integrated with your system and pushing over sales as well, for that reconciliation, you're going to end up with double sales.

39:34 Brittany Brown

So one of the things we really like about Finale is the fact that it lets us control what syncs over and what doesn't. A lot of other tools are an all or nothing sync, which means you either have to fully embrace the world where you have the sales come over from the IMS and then you have to deal with the issues around the reconciliation, or you have to abandon having the data come over from the IMS completely and move entirely to tools like A2X to bring over the sales data.

40:04 Brittany Brown

One of the things we love about the way that Finale has built their integration is that it allows you to control this and say, you know what, I think I'll take sales from A2X because of the reconciliation, but I'd still like COGS to come over from Finale instead. And so it really does allow for a workflow that can be very customised depending on your business need, which is quite ideal honestly.

40:28 Brittany Brown

Okay, so the next question we have that I thought was a great question is, what is the average size of business revenue you see that comes into an IMS?

40:34 Tamara Miller

Oh, that actually really varies. Currently today I would say that sweet spot is between 2 to 50 million a year.

40:46 Brittany Brown

Great. And we tell our clients, another thing I love about Finale, you guys hear me say this all the time, is that they have packages that are really ideal for small sellers, that are at a price point that is very affordable. If you want to begin to tackle the maturity of this when things are still fairly small and simple and you can wrap your head around it, it's a very affordable tool based on number of integrations and stuff like that. But as you grow and turn into a really large complex business, it can grow with you as well.

41:17 Brittany Brown

So we have clients who are like 60 to 80 million a year in revenue who are not in an IMS, and they should be. And the reason why they're not now is because they waited so long, and their businesses grew so complex, that the idea of the workload involved in that is now so overwhelming that they literally don't take action.

41:35 Brittany Brown

So I would say, do not wait until you are a large complex business to tackle this, because then you will probably miss the mark on it and it will become even more painful than it otherwise would be. You have nothing to lose by tackling this journey early on, because it is so much easier to wrap your head around it when it is small, and then it is so much easier to grow and expand little by little, instead of trying to jump into something that's now very complex.

42:08 Brittany Brown

Okay, the next question was basically around calculating COGS for clients that don't have an IMS. So the question was, if you're not using an IMS, how are you getting accurate inventory, specifically for Amazon FBA sellers, going into some of the complexities around lost and found inventory, deferred transactions, since it's not taken into account with A2X? How do you reconcile all of this stuff?

42:41 Brittany Brown

So really the question is, what do the processes look like if you're not in an IMS solution? And I would say this is probably an accounting question primarily. So Karlie, if you want to give them sort of an overarching idea of what we do for our clients who are not in IMS solutions, so they kind of understand what that looks like on the accounting side.

42:53 Karlie Lester

What we start with is trying to understand your purchases. Who are you purchasing inventory from, so we know on the balance sheet what needs to hit inventory and increase that value. Because that's the only insight we have. We don't, as accountants, have insight into your operations.

43:14 Karlie Lester

And if you're not in a tool, we have a little insight we can get in your tool, but if we don't, we just have to rely on you saying, well, these are my inventory vendors, these are my purchases. And as those come through, whether it comes through the bank feed or comes through as bills, we code them to the right spot, so we're increasing with our inflows on our balance sheet.

43:33 Karlie Lester

Then every month we talk with our clients to decide how we're going to calculate COGS, and then on a monthly basis expense it over to the P&L.

43:46 Karlie Lester

Now this can vary from client to client. As Brittany said, some come and say, well, I don't really know my product cost, and I don't want to go in a tool.

43:56 Karlie Lester

Let's talk about a client that does have their product costs and can tell us their product cost. We would suggest calculating a sales based COGS. We would pull all the sales during the month, so we can see what went out, that inventory outflow for sales, and multiply it by the product cost and the quantities to determine your monthly cost, and then we book it each month.

44:22 Karlie Lester

But some of our clients don't have a product cost, and they're like, we don't know. So we try to ask for other methods and say, well, we could use a percent of revenue, if you know about how much. We can use some type of estimates. If you're doing regular end counts and you know your ending inventory value, we can back into it using the cost of goods sold equation.

44:42 Karlie Lester

So we have different methods to determine COGS. We need to book COGS every month, and so we would use that.

44:48 Karlie Lester

But remember that's only one inventory outflow that we can account for. So if we have clients that operationally aren't tracking other outflows, like damaged goods or things going out for influencers, we're not capturing that.

45:00 Karlie Lester

And so on a monthly basis we do our best to capture what we can as inventory leaves by sales, using whatever method the client is comfortable with, or able to supply that operational data for us.

45:19 Karlie Lester

And then at the end of the year, or at least once a year, we do have to capture the rest of those outflows that they're not tracking operationally. And so we do an inventory true up.

45:25 Karlie Lester

We would ask our clients at the end of the year, we really need you to do a physical count and value your inventory, and say, the value of the inventory I have right now is this much. We see what we have on the balance sheet, and then we need to true it up, and there's an adjustment. And that adjustment is usually all those outflows that weren't accounted for all year, because there were no operational processes in place.

45:48 Karlie Lester

So we have a lot of clients at the end of the year who have these huge adjustments. This is another reason a lot of our clients are ready to go to a tool. They're tired of those huge adjustments. A tool will track those monthly and know what those stock takes are, so you're not surprised with this huge adjustment, or the frustration of valuing your inventory at the end of the year because you don't know your product cost and you're not really sure where things are at, what's been paid for and not received, or received and not paid for, because this person's doing purchases and this worksheet only gets updated once a month.

46:20 Karlie Lester

So as an inventory accountant, when we're trying to help our clients and they don't have those operations in place, that's the best that we can do at that point. And then we try to meet with them and talk about it. Okay, let's talk about your purchasing process, how can we make this better so that we can get the data we need to give better inventory accounting for you?

46:38 Karlie Lester

And we'll help build those manual processes as much as we can. Let's track your returns. Let us know at the end of the month what returns went back in inventory, so we can do a journal entry to put that back into inventory and back out the COGS.

46:44 Karlie Lester

So we can do a lot of that manually and talk to them. But again, as you grow and get bigger, even those manual processes for us as the accountants can become very difficult, and full of human error. So those tools are great.

46:58 Karlie Lester

I don't know, did I answer it well enough, Brittany?

47:04 Brittany Brown

Yeah, that was great. One of the things I want to add to that is, anytime you're not in a tool but you're asking your accountant to calculate COGS for you, you just need to know that an accountant cannot duplicate the power and capability of an IMS.

47:16 Brittany Brown

So there will be inherent limitations, like what Karlie was saying, larger adjustments because you're not capturing things. An IMS tool is designed to integrate and capture data in real time, so it's watching everything coming in and it's watching everything selling.

47:33 Brittany Brown

And it simplifies processes. For example, and this leads me into our next question, the allocation of landed versus buy cost becomes really hard for an accountant to do in a spreadsheet, but is fundamentally built into the process of an IMS.

47:46 Brittany Brown

Which leads me to this question that I want to ask next, really directed towards Finale. What would be the best way to calculate the landed costs? Can Finale track the landed cost on a SKU level? Is it [unclear] average with every new PO? Go ahead and take that, Madison.

48:04 Madison

Yeah, so Finale does a weighted average landed cost tracking method.

So on your purchase order you're able to enter the unit price you're buying it for, and then any other adjustments associated to that purchase order. So if you're paying any duties, any fees, any taxes, any miscellaneous fees, anything that additionally adds to that product's cost, you're able to add it on the purchase order itself.

48:30 Madison

And then allocate that adjustment. So you can tell Finale how you want Finale to allocate that duty. Do you want it allocated by subtotal, by equal distribution, by quantity? So you can tell Finale specifically how you want us to allocate these adjustments.

48:43 Madison

And then Finale is able to roll up and give you a landed cost per SKU, and that is on a per SKU basis, and it is updated automatically. So as you receive the item on a purchase order this week it'll update, you receive it next week it'll update. It'll update on the back end as you receive that item on a purchase order. For deburying costs, it is all automated.

49:07 Brittany Brown

Great, thanks Madison. As opposed to accountants trying to do that in spreadsheets, by the way, which is really hard, very time consuming, time equals money, and is fraught with human error. And you have to be like an absolute spreadsheet wizard, which Karlie is, but even spreadsheets have their limitations. This is really where you start getting into the tools.

49:26 Karlie Lester

Brittany, to add to that one really fast. With the landed cost, a lot of times business owners will have a cost come in later for shipping, it's a third party shipping bill, and they want to land it two months later. The PO's already been put in, it's been received, but now they need to land this.

49:39 Karlie Lester

And Finale allows you to land it later, redo the cost, and then it updates your COGS. We can't do that manually, go back and then update COGS for all the sales for the two months that it sold. But Finale does that, and so that's great too, the ability to do it after.

49:57 Brittany Brown

So I want to take the next question, if you guys are okay with it, because it really speaks to the pain of a business owner trying to track profitability and understanding how to be profitable with the cash pain that they're experiencing.

50:09 Brittany Brown

So the question is, and I'm sure every single person on this call who is a brand owner can relate to her question, how do you create profit and grow when you're a new or small business with an inventory markup of 50%?

50:20 Brittany Brown

My confusion comes from the fact that if I mark up 50%, which is the industry standard, you then eventually have to turn around and replace that product, and many brands have order minimums. But what you earn goes into replacing what you sold, and you're break even, and that is without accounting for shipping cost. If you order in higher bulk it is more cost effective, but then overstock issues come up sometimes.

50:42 Brittany Brown

And then she adds, I will then add to the above that marking it up higher than 50%, or too high, makes it difficult to compete with other companies who offer it at a 50% standard markup, or even cheaper in some cases.

50:54 Brittany Brown

So this problem that you're describing, of basically having to front end the investment in inventory from a cash perspective, and then only getting 50% markup on the profit, and then having to turn around and figure out how to rebuy your inventory when you have to again lay out the cash on the front end. How in the world do you create profitability and sustainability as a business?

51:13 Brittany Brown

So first of all, one thing you just need to know and understand is that you are not alone in this pain that you're experiencing. The cash process of having to pay that cash up front, and then the profitability is actually tracked over time as it's sold, but that doesn't change the fact that the cash outlay usually has to be invested up front.

51:38 Brittany Brown

I also own a brand business and I'm an accounting firm owner, so I feel like I can really speak to this from a place of wisdom, which is that in the early phases of this it becomes particularly hard.

51:50 Brittany Brown

And one thing you need to know is, if you are in a fast growth trajectory, the cash is going to be even more painful than it would otherwise be.

51:56 Brittany Brown

And I want you guys to be aware of the fact that you have a slow cash cycle, so this is at the heart of your problem as well. Madison touched on the cash cycle, but the length of the cash cycle is even longer these days than it used to be, because oftentimes you're ordering from overseas.

52:16 Brittany Brown

And so that cash cycle starts when you order the product and have to cough up the cash, at least for a down payment up front. And then you have to wait for that product to be manufactured, and then you have to wait for that manufactured product to travel across the ocean and get into your warehouses. And even then you might then be queuing it up to be sending it on to FBA. And then you have to wait for that product to sell from that warehouse, and wait for that cash to actually deposit into your bank account, before you fully complete that cash cycle. And meanwhile you probably had to place an additional order, which then requires additional cash on the front end.

52:57 Brittany Brown

Basically what I would say about this is, you either need to scale back and control your growth, or you need to find sources of capital early on.

53:04 Brittany Brown

So we have several videos on our YouTube channel that talk about sources of capital. There's a lot that we really like that we are very aware of. Some of our other favourite partners are Settle, because they offer this front end financing.

53:22 Brittany Brown

QuickBooks Online is now integrating more closely with Amazon, in part to improve the capital offerings for their ecommerce sellers.

53:33 Brittany Brown

American Express has a line of credit that's specific for product businesses. Oftentimes it can be hard to get capital for product businesses because you don't have the collateral that a lot of bankers require.

53:53 Brittany Brown

So I wouldn't necessarily recommend the banking route on this. I would recommend some of these other sources, like Settle, like the American Express line of credit, like the capital offerings being offered right now through QuickBooks Online.

54:05 Brittany Brown

But because of the cash cycle, if you are trying to self fund entirely from profits from the business, you will either have to scale your growth way back, if you're planning on doing that, or you need to find sources of capital early on.

54:17 Brittany Brown

We had to find sources of capital early on. And then as time goes on, keep the money in the business as working capital. Don't just take it as business owners, until you build up enough working capital that you're able to fund product purchases and fund growth on that.

54:35 Brittany Brown

But the beginning phases of this are just painful. Unfortunately it's kind of just the way it is.

54:43 Brittany Brown

One other question is, is there a recommended report to extract, and how can it be customised to identify which items are running out of stock?

54:55 Tamara Miller

Yeah, I'll take that one actually.

There is, and you can either customise the solution, or there's already a built in solution. So within Finale we have reordering thresholds that we can establish, and those can be based on min max numbers.

55:14 Tamara Miller

So in other words, we establish a minimum threshold, and as soon as you reach that minimum there is an alert and a notification that is then sent to the users within the system itself, to essentially let them know these are the items that are running out of stock.

55:32 Tamara Miller

The reorder method that I prefer, and that I highly recommend for many ecommerce sellers, is actually the reorder method by sales velocity, because it's taking into account some of the things that Brittany, Karlie and Madison touched on.

55:53 Tamara Miller

It's looking at your supplier data as well. What's the lead time? How long is it going to take for me to receive this purchase shipment once I send this PO to my supplier itself? When I receive that shipment, how long does it take the team to process that shipment and then make it visible so that it is able to be sold?

56:12 Tamara Miller

It's also taking into account your percentage of growth, so that we're not flat when forecasting those inventory needs. And if there are any minimums that you have to meet when placing orders with your suppliers, that's also a data point that we're taking a look at. And then there are countless others.

56:40 Tamara Miller

And when we're doing that, we're also looking at what is the actual selling activity itself. So what we're doing is getting an aggregate average of your sales velocity as well as your consumption velocity.

56:59 Tamara Miller

And I know that I may have thrown some big words around, but essentially what we're saying is, how often are you selling this product? And if you have several warehouses, what is the consumption need at each individual warehouse? Because we don't want to have a blanketed response of, you need 100 units, when you may only need 50 at a specific warehouse.

57:23 Tamara Miller

So when we're gathering all that information, we have an internal algorithm that allows us to forecast what those needs are, so that you're not selling out of stock. And those are reorder reports that we can customise based on what you're looking for, and those can be automatically sent to you directly via email, or when you're logged into the user interface they're under the purchasing module itself.

57:49 Brittany Brown

Thanks, Tamara.

Okay, so we want to talk to you guys about the next webinar and what to expect. But there was one last question that I think is a really good one, and this one I think is a great one for Finale to answer. Just keep it quick so we can get to the next part.

58:04 Brittany Brown

Their question was, if you're ready to make changes to your operations and accounting and implement a new IMS, how long does it take to implement, and what are the general costs with Finale?

58:14 Tamara Miller

Great question. And for the sake of brevity, Sam, if you'll drop a link to our pricing page, that'll be great.

58:20 Tamara Miller

I'll speak real quick. Timeline really depends on your business complexity and readiness. Typically a basic IMS implementation takes about 2 to 4 weeks. There are several factors, like size of your product, number of selling channels, complexity of your workflows, that come into play.

58:36 Tamara Miller

Again, we don't have any implementation cost at all. We consider it as a cost of doing business. We have a simple flat rate monthly or annual plan. You can take a look at that, Sam should be adding that for everyone to see.

58:53 Brittany Brown

Awesome, great. Okay, last slide, we're going to talk about our next webinar.

Like I mentioned, you guys do not want to miss this. These webinar series build upon each other, and we have a great lineup on the next one as well.

59:00 Brittany Brown

So the next one is on purchasing and the three-way match, which is a critical control to make sure that you're protecting your two most important assets, which are your inventory and your cash. So we're going to talk about how to make the purchasing process effortless, how to maintain clean records, and how to have good seamless reordering.

59:22 Brittany Brown

So the next lesson in the Inventory Accounting Simplified series is going to be on March 5th at 10 Pacific Time, 1 Eastern Time.

59:29 Brittany Brown

And it looks like we have a, Tamara, I know this guy, but tell me who he is, who's on our next webinar?

59:36 Tamara Miller

Yeah, the next guy is John, and he is our reporting guru here at Finale Inventory. So you guys are in for a treat for sure.

59:42 Brittany Brown

You guys, this is really great. For real, mark your calendars, save the times. These are really going to be worthwhile webinars to attend.

59:48 Brittany Brown

We love Finale, we love everything they have to say, and as you can tell they are givers also. I don't know if you guys understand how unique this is, that they have a no cost in-house implementation.

1:00:07 Brittany Brown

What we tell our clients all the time when we get to this point, when we're helping them try to decide, is, this is where you have nothing to lose. It's not like you invested $20,000 on the front end for an implementation. By implementing the tool and going through the process, just that alone brings operational maturity to your organisation, because many of the things you have to do on the front end of that help create visibility for you as a company.

1:00:32 Brittany Brown

So we really love Finale, we love everything they do, we love their support, we love their partnership, we love their tool, we love the people quite honestly. They have now become personal friends, I consider them my conference besties.

1:00:45 Brittany Brown

So we hope to see you guys on the next webinar. Thank you so much for joining this one, and for your engagement and for your questions and for your interest.

And reach out to Finale if you want to know more about implementing their tool, and reach out to us if you would like to know more about getting support around your accounting for ecommerce. And with that, we will see you next time.