The total cost method (TCO) provides a remedy. It provides you with a complete overview of all expenses in the company – and thus creates the basis for well-founded decisions and higher profits.

In this article, you will learn how to use the GKV to uncover cost traps, improve your profitability and secure your company’s competitiveness. We also show you the risks that arise when companies forgo the SHI – and for which sectors the method is particularly worthwhile.

What is the nature of expense method?

The nature of expense method is a method used in the income statement. It compares all expenses in a financial year with income – regardless of whether the goods produced have already been sold or are still in stock.

In contrast to the cost of sales method, the cost of sales method takes all cost types into account. This gives you a complete picture of your operating expenses and shows you how your resources are actually being used.

The advantages of the TCO for medium-sized companies

Visualize a detailed cost structure

The TCM breaks down expenses by cost type – for example materials, personnel or depreciation. This allows you to see at a glance which areas cause the highest costs. You can intervene in a targeted manner: for example, through better purchasing conditions, more efficient processes or optimized personnel deployment planning.

Control profitability

The GKV shows you exactly at which turnover your costs are covered. On this basis, you can adjust your prices or production volumes – an indispensable control parameter, especially when margins are low.

Recognize trends and fluctuations in good time

Regular SHI evaluations show you seasonal fluctuations and trends in cost development at an early stage. This allows you to remain capable of acting and avoid undesirable developments before they have a negative impact on your balance sheet.

Safeguard investments

The GKV provides reliable data for investment decisions. You simulate different scenarios and create a sound basis for making decisions on future investments.

Transparent planning and budgeting

Thanks to GKV’s comprehensive database, you can create well-founded budgets and forecasts. You recognize deviations at an early stage and can take countermeasures in good time.

What happens when companies do not use the TCO?

Many medium-sized companies do not use the total cost method – often because they shy away from the effort involved. The consequences are considerable:

Lack of cost transparency

Those who do not know what costs are actually incurred in the company are forced to make decisions based on gut feeling. Investments, price calculations and cost reductions are then based on assumptions instead of reliable data.

Unclear stock valuation

Without GKV, it is often unclear how much capital is tied up in the warehouse. Companies underestimate the actual inventory costs – which can lead to liquidity bottlenecks.

Hidden inefficiencies

Without complete cost transparency, cost drivers often remain undetected. Inefficient processes, high reject rates or excessive energy consumption are not recognized – and reduce the company’s competitiveness.

Difficulties with financing

Banks and investors demand transparent figures. Without precise data, the chances of obtaining favorable financing conditions decrease.

Mismanagement due to inaccurate stock levels

Too little stock can lead to so-called “stock-outs” – in other words, you cannot fulfill orders because goods are missing. This not only means a loss of sales, but also damage to your image and a loss of customer loyalty.

Too much stock is just as problematic: stock ties up liquidity and increases the risk of write-offs if it is no longer used. Both reduce the result.

In short, without GKV, companies run the risk of misjudging their economic situation – with negative consequences for growth and stability.

For which companies and sectors is the TCO particularly suitable?

The total cost method is particularly advantageous for these companies:

Manufacturing companies

Companies with their own production facilities benefit greatly from the GKV because it comprehensively maps all costs – including storage and manufacturing costs. This enables them to recognize how much capital is tied up in raw materials, semi-finished or finished goods and to manage their production efficiently.

Companies with seasonal business

Industries such as construction, agriculture or the textile trade are subject to seasonal fluctuations. The GKV helps to identify these, secure liquidity and avoid bottlenecks.

Companies with complex cost structures

Industries with many cost types – such as the chemical, mechanical engineering or food industries – need precise cost management. The GKV creates the necessary transparency for well-founded decisions.

Growing companies

Anyone expanding needs reliable data for secure investments. The GKV provides this basis for simulations and protects against wrong decisions.

The weaknesses of the TCO – and how to compensate for them

The total cost method offers many advantages, but also some limitations. These can be specifically compensated for:

No product cost analysis

The GKV does not show which costs can be allocated to individual products. You should therefore supplement it with cost unit accounting in order to evaluate the profitability of individual products.

Limited analysis of cost drivers

The GKV does not answer the question of why certain costs are incurred. Supplement your analysis with activity-based costing to delve deeper into the causes.

Difficult comparisons

Companies use different accounting methods. When making comparisons, ensure that data sets are standardized and comparable.

Delayed response options

The GKV provides figures retrospectively. Combine it with controlling tools that provide real-time data to react faster.

Inventory valuation can be time-consuming

It is particularly time-consuming for small companies to regularly evaluate stock levels. A functioning inventory management system or well-organized stocktaking is essential here.

Values are not product-related

The data from the total cost method cannot be used directly to calculate individual products. Additional calculation methods are required here.

Conclusion: Uncover cost traps and secure competitive advantages with the TCO

The total cost method offers you, as a financial manager in the SME sector, a solid basis for maintaining an overview of all expenses. You uncover hidden costs, make well-founded decisions and secure your company’s competitiveness. If you intelligently supplement the TCM with other methods, you will gain a real advantage – and steer safely through challenging times.

Register now free of charge: Our info webinar “Inventory 365”

Inventory 365 specifically extends the classic total cost method (TCO) – and integrates it directly into Microsoft Dynamics 365 Business Central.

Find out in our next webinar how you can use the total cost method to precisely record the value of your inventories – and why this is crucial for your profitability.

Register now for free.

Rethink your offering: subscription models with a future

With a little creativity, many products can be transformed into an attractive subscription model. Here are the most common models with examples for SMEs:

Access model:

• Customers pay a recurring fee to access products or services.
• Example: A medium-sized tool manufacturer offers craftsmen a flat rate for tools including maintenance and repair.

Replenishment model:

• Products that are regularly consumed are automatically replenished.
• Example: Razor blade or coffee subscriptions.

Surprise box model:

• Customers regularly receive a box with personalized products.
• Example: A fashion retailer sends out a monthly “style box” with items of clothing tailored to customers’ individual tastes..

Membership model:

• Customers pay for a club membership and benefit from exclusive advantages.
• Example: Fitness studios or management consultancies that offer exclusive consulting services as part of the club membership

Software-as-a-Service (SaaS) model:

• Use of a software or platform for a monthly fee.
• Example: cloud storage or business software.

Pay-per-use model:

• Billing based on actual usage.
• Example: A print shop where customers receive a fixed quota of printing services for a flat rate.

Freemium model:

• Basic version free of charge, extended functions for a fee.
• Example: Newspapers, magazines, software or online games.

Affiliate model:

• Partners advertise products and receive commissions for successful referrals.
• Example: Online marketing or complementary products such as printers and toner.

License model:

• Customers acquire usage licenses limited in time or quantity.
• Example: Software or copyrighted content.

Franchise model:

• Use of an established business model in return for fees and revenue shares.
• Example: gastronomy or retail.

Checklist: Is your product suitable for subscription?

Before you decide on a subscription model, you should answer the following questions:

• Recurring demand:
  Is your product or service needed or consumed on a regular basis?
• Value proposition:
  Does a subscription offer clear added value compared to individual purchases (e.g. convenience, cost savings, exclusivity)?
• Customer relationship:
  Does the product or service foster a long-term customer relationship?
• Differentiation:
  Does a subscription help differentiate you from your competitors?
• Scalability:
  Is the business model scalable to serve a growing volume of subscribers?
• Logistics:
  Can the delivery or provision of the product or service be organized efficiently and reliably?
• Payment processing:
  Is a system for recurring payments in place or can it be implemented?
• Customer management:
  Is there a way to manage customer data and subscriptions?

Software support for your subscription business

Managing subscriptions involves special challenges such as billing, customer management and dunning. Specialized subscription software helps you to automate the processes involved and maintain an overview.

Advantages of subscription software:

• Efficiency:
  Automated invoicing, payment processing and reminders.
• Flexibility:
  Various subscription models and price options.
• Transparency:
  Overview of subscribers, sales and key figures.
• Integration:
  Connection to CRM and accounting systems.

Subscription software in practice

There are numerous solutions available on the market. It is important that your software can be seamlessly integrated into your existing systems, such as Microsoft Dynamics Business Central.

This is exactly what bill-to is made for. Find out in our webinar how you can optimize your subscription offering with the help of our add-on for Business Central.

Register now! To the webinar overview

Subscription models: more flexible and individual

Subscription models play an interesting role in the retail transformation process. Up to now, they have mostly followed a rigid interval and therefore lack flexibility. However, according to the “Trends in Retail 2025” study, the next generation of subscription models will be increasingly individualized and consumption-based. Companies will benefit from this: services such as rental and hire offers rank third in the study in terms of the likelihood of new shopping concepts being used.

Target group of the future: young, tech-savvy, high-income

19 percent of respondents already use such models or can imagine using them. Young, technology-savvy men with medium to high incomes are a particularly attractive target group. They are keen to experiment and are willing to invest in smart solutions. Nevertheless, companies should also address other customer groups in order to be successful in the long term.

What are usage-based subscriptions?

One example of usage-based models are mobile data contracts where customers only pay for the data volume they actually use. Such models are also established in the IT sector, for example with software-as-a-service (SaaS) or cloud storage services. Innovative approaches are also possible in other areas: for example, coffee machine manufacturers could cooperate with coffee suppliers to automatically deliver fresh coffee.

Sustainability and flexibility: a strong duo

Usage-based models promote sustainable consumption. Customers can use products without owning them. Examples such as car sharing, city cars or the combination of rail subscriptions and rental bikes show how environmentally friendly such approaches can be.

The advantages for companies and customers

Usage-based subscriptions offer numerous advantages:

• Flexible prices: Pricing models can be customized. Frequent users often pay less per unit than occasional users, as is the case with most streaming services. If resources are scarce or peak usage times need to be cushioned, as is the case with transportation, intensive users can also pay higher prices.
• Greater customer loyalty: Convenient and transparent billing models strengthen customer loyalty.
• Lower decision hurdles: Flexible models take away customers’ worries about paying too much or too little.
• Better customer understanding: Usage data enables companies to optimize their offers and tailor them to individual needs.

Successful variants of usage-based subscriptions

There are three common models:

• Tiered model: costs rise or fall depending on usage, such as with electricity tariffs.
• Flat rate per unit: A fixed price per unit used, such as with some mobile phone contracts.
• Hybrid model: A combination of basic fee and usage-based costs, typical for many SaaS services.

The choice of model depends on the customer’s needs and willingness to pay.

The challenges of implementation

Despite the advantages, there are a few hurdles that companies need to overcome:

Usage recording and billing

• Accuracy: Usage must be recorded precisely. Inaccuracies lead to customer frustration and billing problems.
• Complexity: Measuring usage is technically demanding, especially for high-tech products. What exactly does “consumption” mean for a smartphone, for example? Are users prepared to transfer their data over the long term? Is data transmission sufficiently protected against misuse?
• Data quality: Incorrect data jeopardizes the entire billing process.

Pricing and customer acceptance

• Transparency: Customers must understand how prices are calculated. Models that are too complicated are a deterrent.
• Predictability: Fluctuating prices can cause uncertainty. Companies should communicate clear price ranges.
• Understanding of value: Customers must recognize the added value of the subscription in order to accept attractive pricing.

Technical requirements

• IT infrastructure: A scalable, secure infrastructure for data processing is essential.
• Security: Data protection must be a top priority, especially when dealing with sensitive user data.

bill-to: How to master the challenges

Our bill-to 365 software supports you in this. It integrates seamlessly into Microsoft Dynamics Business Central and facilitates usage recording and secure billing.
Would you like to find out more? Visit our next webinar! We will show you in a practical way how you can make the most of the advantages of usage-based models with bill-to 365. Information and registration here.

However, the shopping frenzy is often followed by a wave of returns. Many customers use the right of return to try out alternatives or exchange gifts. Each return incurs an average cost of around seven euros per parcel, depending on the product category and the returns process. These costs are made up of shipping costs, loss of value, customer support and processing.

Returns in figures: Twice around the world

A study of 302 online retailers illustrates the dimensions of the returns problem:

• 5,774,560 returns were processed during the study period.
• The retailers achieved a total turnover of 793,808,397 euros.
• Returns-to-sales ratio: 0.00727 returns per euro transacted.

Extrapolated to the entire German mail order business, this results in an estimate of around 286 million returns per year, based on an annual turnover of 39.3 billion euros. If these returns were lined up in parcels with an edge length of 40 cm, this would result in a distance of around 114,400 kilometres – almost 2.86 circumnavigations of the earth!

A balancing act between customer satisfaction and cost efficiency

Customer-friendly returns management strengthens customer loyalty. However, high returns rates can have a negative impact on profitability. Retailers are therefore faced with a difficult balancing act: a generous returns policy promotes customer satisfaction, but can also lead to excessive costs.

Legal framework and restrictions

According to EU law, retailers must take back goods within 14 days of receipt without giving a reason. This gives retailers little influence over customers’ decisions. However, they can organise the returns process efficiently and minimise the number of incorrect orders from the outset.

The typical returns process: from the returns note to the refund
A well thought-out returns process comprises several steps:

1. register the return: The customer registers the return via an online portal and receives a returns label.
2. goods receipt and inspection: On arrival, the condition of the goods is checked and documented.
3. further processing: Depending on the condition, the goods are either put back into storage, sold as B-goods or disposed of.
4. customer support and finalisation: The process ends with a refund or exchange.

Optimising the returns process: a selection of strategies.

• Efficient processes: Standardise your processes for goods receipt and inspection to save time and costs.
• Mobile solutions: Equip your employees with mobile devices to carry out inspections directly at the storage location.
• Data analysis: Use collected data to identify common reasons for returns and adapt your products or processes accordingly.
• Flexible warehousing: Organise your warehouse so that you can react quickly to returns and process the goods efficiently.
• B-goods sales: Use platforms for the sale of B-goods to maximise the value of your returns.

Measures to reduce returns

Retailers also have a great interest in minimising returns. There are various approaches to this:

• Shipping cost regulation: should return shipping be free or partially transferred to the customer? This decision has an influence on customer behaviour.
• Virtual try-on and augmented reality: Body measurement tools or virtual try-ons can help prevent incorrect purchases, especially in the clothing sector. These technologies are on the rise and can reduce the returns rate in the long term.
• Clear product information: Precise descriptions, informative photographs and clear size charts enable customers to make informed decisions and reduce bad purchases.

Returns management: a balancing act with future potential

Returns management remains a challenge. If you want to satisfy customers, you cannot limit returns too much, but the associated costs are considerable. The solution lies in the optimisation of processes and targeted investment in digital technologies.

Process optimisation through transparency with CKL software

Efficient returns management relies on precise processes and digital workflows. The cost accounting module from CKL Software, integrated into Microsoft Dynamics Business Central, offers helpful support in process cost analysis, such as the recording of labour and process times, booking of production data and automated inventory adjustments. In addition, CKL’s apps offer functions for greater data transparency on the way to intelligent returns management:

• Detailed basic returns recording: this function enables accurate data collection as the basis for analysing and precisely optimising processes.
• Customised workflows: Retailers can have specific workflows for different reasons for returns. This level of detail is important and offers different perspectives on the fields of action as a basis for reducing costs.
• Comprehensive reporting: Detailed analyses of return rates and costs support strategic decisions and ensure long-term survival in a highly competitive market

Discover these possibilities for yourself and attend one of our next webinars on cost accounting: information and registration can be found on our website.

What helps you in this situation when communicating with your clients and other stakeholders? How can you gain and stabilize approval?

Here you will learn which key performance indicators (KPIs) are useful for measuring project success, how to select KPIs specifically and what challenges can arise when measuring them.

You will also learn how precise analyses can improve the implementation process and maximize long-term benefits.

Why are key figures important when introducing Business Central?

You can use KPIs to monitor the progress and success of the introduction of Business Central. The following aspects become visible through KPIs:

• Project status: is the time and budget plan being adhered to?
• Process efficiency: How do the new processes improve working methods?
• Financial impact: How is the company’s result developing after implementation?

Key figures are the basis for analysis and optimization. They make it possible to make the success of the project transparent for stakeholders and decision-makers. Ultimately, you need them to justify the investment.

Which key figures are important?

Various categories of key figures are relevant. They can be divided into three areas:

1. project-related KPIs

These KPIs measure the progress and quality of the project:

• Schedule deviation: shows how much the actual progress deviates from the schedule. Minor deviations indicate a smooth process.
• Budget adherence: Measures whether the project remains within budget.
• Quality of implementation: Does the implementation meet the requirements? Internal audits or user acceptance tests (UAT) are suitable measuring instruments.

2. process-related key figures

These KPIs show how well the new systems and processes work on a day-to-day basis:

• Lead time: time required to complete a business process, e.g. from order to invoicing.
• Error rate: Number of errors after implementation. A low error rate indicates stable processes.
• Employee satisfaction: Shows how well the workforce is coping with the new tools and processes.

3. business-related key performance indicators

These KPIs measure the direct impact of the ERP implementation on the company’s results:

• Sales growth: is there a positive change in sales after the implementation?
• Customer satisfaction: Shows whether the ERP implementation has improved the customer experience.
• Profitability: Does profitability increase due to more efficient processes and less waste?
• Employee productivity: Expressed in faster task completion or higher quality.

Individual key figures: Why is a customized selection crucial?

The right KPIs depend on a company’s goals and challenges. A manufacturing company will choose different KPIs than a service provider. Standard KPIs are helpful as a first approximation, but customization is necessary to identify the company’s greatest potential.

Practical examples of targeted KPI use

Different industries use different KPIs:

• Manufacturing companies: Key performance indicators such as throughput time, reject rate and machine availability increase production efficiency.
• Trading companies: Delivery reliability, customer loyalty and returns rate help to increase customer satisfaction.
• Service companies: Successful projects, customer satisfaction and employee turnover are key performance indicators here

Long-term success monitoring and adjustment of KPIs

KPIs are not only relevant for the introduction phase. They are also used for ongoing optimization. A one-off look at the KPIs is therefore not enough. Rather, regular analysis and adjustment of the KPIs is necessary, as company goals and the environment are constantly changing.

Best practices for the introduction of KPI systems

The successful introduction and use of KPIs requires careful planning. Here are some best practices:

• Clear goal definition: set clear goals and communicate them to all stakeholders.
• Data quality: Data should be complete, accurate and up-to-date.
• Visualization: Use easy-to-understand graphics to illustrate the KPIs.
• Automation: Automate data collection and analysis to save time.
• Integration with Business Central: Use the possibilities of Business Central to record and evaluate KPIs directly in the system.

The connection to cost Accounting

Key figures such as lead time, error rate and productivity are closely related to cost accounting. A shorter throughput time, for example, reduces storage costs and improves capital commitment. A low error rate reduces costs for rework and complaints.

Find out more?

Key figures are the backbone of a successful introduction of Business Central. Through targeted selection, regular monitoring and a close link to cost accounting, companies can optimize their processes, increase efficiency and achieve long-term success.

Would you like to know how you can make the most of the benefits of CKL cost accounting in your company? In our webinars, we present our solutions and answer your questions. Just visit us and see for yourself: CKL webinars.

In each of these events, both private individuals and companies suffer considerable damage. They have to clean up and look for solutions, because life must go on.

Important tasks of controlling in crisis situations

Controlling plays a crucial role in these challenging times. It supports companies in assessing damage and quickly resuming operations. Controlling performs the following tasks:

Damage management and documentation

After every storm, the damage caused must be assessed and documented. This is essential for insurance claims and the financing of reconstruction. This is a major challenge, especially in the case of extensive damage.

Liquidity management in times of crisis

One of the biggest challenges for companies during and after natural disasters is maintaining liquidity. Creating updated liquidity plans and securing emergency credit lines are key here.

Cost control and budget adjustments

Companies must review their budgets and adapt them to the new circumstances. This often means cutting expenditure and reprioritizing resources.

Communication with stakeholders

Transparent and regular communication is of great importance. It is important that all parties involved (employees, customers, suppliers, investors) are kept up to date in order to promote trust and cooperation.

Risk management and future planning

Based on the experience of current emergencies, controlling should develop measures to minimize risks for future crises. This includes analyzing how risks can be better managed, for example through insurance cover, infrastructural improvements or a more flexible supply chain.

Support with reopening and strategic realignment

Controlling should support the planning of the reopening of damaged business premises and warehouses, including the reassessment of the required personnel and operational resources. In the long term, a strategic realignment may also be necessary to make the company more resilient.

Prerequisites for effective controlling

In order to provide these services effectively, controlling must be well positioned. This requires

– Having correct and complete figures available in a timely manner

– Employees’ analytical skills

– Data quality and integrity: The integration of data sources plays a key role in providing a coherent picture of the business situation.

Managers must be aware of the critical aspects and prepare for them. In practice, data complexity is often underestimated, contingency plans are lacking or risk management is neglected.

Support from Cost Accounting 365

Cost Accounting 365″ is also there to help you with unusual challenges. When it comes down to it, the module offers:

– Detailed cost unit and cost center accounting, which is helpful when assessing damages and documenting for insurance claims.

– Comprehensive analysis and reporting functions that help companies keep a close eye on their finances and update liquidity plans.

– Cost and activity accounting functions that help to reprioritize budgets and optimize costs.

Want to learn more? Attend one of our upcoming webcasts.

You can find more information and register here: Cost Accounting 365.

This article looks at the importance of dynamic pricing strategies and how they help companies to react quickly and flexibly to market changes and increase their profitability.

Traditional pricing models

Cost-oriented pricing
Cost-oriented pricing is based on the company’s internal costs. A mark-up is added to the internal costs in order to achieve an appropriate profit.
However, this approach can ignore customers’ actual willingness to pay and lead to inappropriately high or low prices.

Competitive pricing strategies
In this strategy, companies base their prices on those of their competitors and adjust their prices accordingly.
However, this can lead to a price war in which a sales price prevails that does not correspond to the actual value of the product.

Demand-oriented pricing
In demand-oriented pricing, companies are guided by the demand of their customers and adjust their prices accordingly.
However, predicting demand is difficult and can lead to price fluctuations.

Modern approaches to pricing

The introduction of data-based decisions has initiated a change in pricing. Today, companies can implement dynamic pricing strategies and adapt to changing market conditions, changes in demand and other factors at short notice.
To do this, they need advanced data analysis and big data technologies. Thanks to these, they receive comprehensive information about market conditions, customer behavior and competitive activities in real time. On this basis, they are able to make informed pricing decisions and continuously optimize pricing in combination with cost accounting solutions. The goal is maximum profitability.

Dynamically into the future

In a constantly changing business world, dynamic pricing strategies are a cornerstone for the long-term success of retail companies. CKL Cost Accounting 365 offers a wide range of functions that support companies in successfully implementing dynamic pricing strategies:

Cost transparency:
By analyzing cost components in detail, companies can understand their true costs and set appropriate prices.
Cost management:
The software allows costs to be recorded and allocated to different cost types and locations, helping companies to optimize their cost structure.
Profitability analysis:
Companies can use the software to analyze the profitability of individual products or customers and adjust their pricing accordingly.
Would you like to find out more about the benefits of CKL cost accounting?

Then we cordially invite you to our next webinar, where we will give you a detailed insight and answer your questions. Register today!

Click here for information and to register!

Cost accounting is often perceived as a dry subject. In our article, we show you that your cost accounting can do more than just record costs. By analyzing your cost accounting data, you can identify trends, customer needs and unusual correlations.

We have put together five examples for you.

Product range and pricing

“Happy hour” sounds like cocktails and a party. Too bad, actually. Online stores can also take advantage of the relaxed atmosphere on Friday evenings to organize a “happy hour” for selected products. Such a “flash sale” invites customers to stop by regularly to secure a bargain.

When are your customers in your store anyway? What are they looking at? How can you get them to stay longer? With the help of flash sales, you can exploit the potential of existing sales peaks, iron out sales lulls or reduce excess stock. Your cost calculation will tell you whether your campaign is worthwhile.

Omnichannel strategy and customer experience

“How can the conversion rate be reduced?” may have been the initial question of an experiment conducted by a New York fashion store. The operators had set up an interactive mirror in their store. With its help, customers were able to try on various outfits virtually and receive advice from an AI-supported style expert. Various combinations were then suggested to them (source).

Complaints increase costs. Acquiring new customers is expensive. A better customer experience, higher repurchase rates and stronger customer loyalty also make sense from a cost accounting perspective.

Market analysis and customer understanding

Barbecue sausages and coal, ice cream and sun cream, school bags and stationery: Customers who are interested in one are also open to the other. Product combinations like these are obvious.

But what about beer and diapers? This unexpected combination has caused a sensation and is often quoted on the Internet (source). Rumor has it that chocolate consumption also increases when petrol prices fall. It is conceivable that consumers reward themselves and reduce stress.

Bundling offers helps to reduce costs. For interesting and unusual combinations, you need solid figures to recognize correlations in your company. This is the only way to fulfill new wishes and preferences of your customers. 

Sustainability and corporate social responsibility

In recent years, the topic of sustainability has increasingly come into focus. The cost of fossil fuels is rising. What if you could convert the kinetic energy of your footfall in your store into electricity?

Sounds crazy? The technology is likely to take some time to become widely used. But it already exists today (source 1, source 2).

Is it worthwhile for you too? Perhaps on a limited scale – the entrance area that your customers reliably pass through?

If such a project is to be more than a PR stunt, it must be accompanied by cost accounting. Likewise: The example shows that cost accounting data can be used to expand sustainability and corporate social responsibility.

“Cost Accounting 365” from CKL Software

Would you like to take a closer look at your company’s innovation potential? With Cost Accounting 365, you can keep a close eye on your finances and quickly and clearly obtain information on revenues and costs.

Be inspired by one of our upcoming webinars. To the dates and to register: Cost Accounting 365. We look forward to seeing you!

Inventory valuation: effects on the balance sheet

The balance sheet profit is calculated from the difference between assets and liabilities. The items in the warehouse count as assets. If they are valued as high as legally possible, the total amount of assets and therefore the profit increases.

A high asset value is an indication of a financially stable situation in the company.

Example

A trading company estimates the value of its goods in stock at EUR 12,000. However, a precise valuation leads to a correction. The total value is EUR 14,000. The company’s financial situation is therefore better than expected.

Stock valuation: effects on the profit and loss account

Stock valuation also has an impact on the profit generated from sales. Low costs on the goods side cause profits to soar. Correspondingly, the profit decreases when costs are low.

Example

A trading company sells goods worth EUR 20,000. It estimates the cost of goods sold at EUR 10,000. The profit is EUR 10,000.

An audit reveals that the cost of goods sold is actually only EUR 8,000. The profit therefore increases to EUR 12,000.

Further effects of stock valuation

Stock valuation affects other key figures and information in financial reporting, including the following:

Creditworthiness

Before funds flow, investors check the financial situation of a company. Stable finances are a sign of security. An accurate inventory valuation can help improve creditworthiness and investor confidence.

Compliance with accounting standards

Inventory valuation must comply with applicable accounting standards. Traceable accuracy contributes to compliance.

Identification of obsolete stock

Obsolete stock must be written down or even written off completely. If they are included in the balance sheet at their full amount, the profit is unjustifiably high. Accurate stock valuation also helps to identify obsolete stock.

Example

A trading company has goods worth EUR 1,000 in stock. However, the goods have expired and can no longer be sold. The exact stock valuation means that the goods have to be written off as worthless. The company’s profit decreases. At the same time, the tax burden is reduced.

Software support for stock valuation

Software supports retail companies in ensuring accurate stock valuation at all times.

The functions that software can offer include the following:

• An optimal devaluation of assets in stock. This leads to a reduction in the tax burden.
• Valuation according to the strict lowest value principle with a view to the criteria of marketability, age structure, expiration date or range. Individual value adjustments are also possible.
• Efficient and robust valuation of stock values without Excel, and thus: Error avoidance and acceleration.
• Meaningful documentation on the valuation of stock levels over time.

Tips for carrying out an accurate stock valuation

For an accurate stock valuation, we recommend that you

Use valuation methods that are as consistent as possible

In order to be able to compare the results over the years, you should always use the same methods to value your inventories. If you deviate from your valuation method, you should have good reasons for doing so (see also: Changing the stock issue method).

Make sure your stock is up to date

Take all relevant factors, such as the purchase price or current market value, into account when valuing your stock.

Use software support

The average discounter already stocks 2,000 items or more (Statista). Without software support, it is practically impossible to keep track of the best-before date, for example. To optimize stock valuation and avoid errors, you should therefore use software.

Valuation with CKL-Software

Valuation plays a pivotal role in the financial reporting of retail companies, ensuring accurate representation of their assets and performance. In this regard, Valuation 365 emerges as a vital tool. Seamlessly integrated with Microsoft Dynamics 365 Business Central, this app facilitates the assessment of item movements, empowering businesses to derive pertinent values for their annual inventory.

Not only does Valuation 365 streamline the valuation process, but it also aids in aligning asset values with statutory regulations, ensuring compliance and accuracy in financial statements. By leveraging this app, retail companies can confidently prepare and assess their current assets, bolstering transparency and reliability in their financial reporting practices.

Curious about how Valuation 365 can enhance your financial reporting? Join us for an upcoming webcast where we delve into its features and benefits. Gain firsthand insights and explore the potential of Valuation 365 in optimizing your valuation processes. Secure your spot today by registering for our Valuation 365 Webcast and unlock the power of accurate valuation in retail financial reporting.