Understanding Inventory, Cash Conversions, and SKU Profitability

Challenge

A small business in the kitchen & cooking supply retail space came to GrowthLab looking for some elevated accounting and financial guidance. This store reminded us of businesses we see very often - founders that start a business out of the love of something (in this case cooking) - yet, they don’t enjoy, nor want to focus, on the foundational bookkeeping and accounting management. We get it… it’s not the most exciting part of starting a business!

As with all retail businesses, one of the most important things to track is where the company is making and losing money. This may sound straightforward, but for many businesses, it’s not as simple as it sounds. Inventory management and the tying back to your accounting systems can actually be a complicated and time-consuming process if you don’t have the right systems in place. For this business, the inventory is bought from an assortment of vendors, and the founder was still in the process of writing physical checks to pay for those goods - something that is a natural tendency but can come back to bite. Our goal when jumping in was to help transition the company to a more robust and systematized accounting and inventory management system. 

Solution

Since the beginning of our relationship together, GrowthLab has worked closely with the owner and management team to get up and running on QuickBooks Online. We quickly set up a system for keeping the books clean, up to date, and in line with the POS system for inventory and sales tracking. We have monthly meetings together to review the financials, as well as act as a resource for any ancillary questions that may arise over the course of the month. This monthly meeting is something we pride ourselves on - not just a delivery of financials but a confirmed understanding of them as well. 

Results

GrowthLab has since been able to completely transition this company to virtual systems - something that has come in extreme handy throughout 2020 with COVID forcing a virtual presence. Inventory management and tracking has been set up and systematized, finally giving the management team solid insights into where they’re making and losing money, along with accurate inventory balances for the purpose of restocking and cash flow planning. For small businesses, we all know cash is the most important number to be aware of - without it you can’t go very far. Our focus with this team was not to just set up overly complex systems, but to gain a deeper understanding into inventory, cash conversions, and underlying SKU profitability.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.