A missing warehouse – fatal consequences

Warehouses must be well managed in order to serve customers quickly and deliver goods.

Too much stock is just as bad as too little. Too much stock ties up valuable capital. Products become obsolete, suffer damage and may have to be written off.

Effective inventory management – the key to success

It is therefore important to find a balance. Complete and correct inventory management is essential for this. Errors must be identified and rectified quickly.

Correct inventory management not only has a positive impact on customer satisfaction. It also improves:

Transparency:

• The service team can competently inform customers about order processing and delivery dates.
• Reliable information gives the customer a good feeling. The image and customer loyalty increase.

Efficient decisions:

• Thanks to correct and seamless inventory management, the purchasing department gains an overview of stocks, even across branches.
• They can optimize orders in terms of timing and delivery conditions.

A feel for trends and profitability:

• Some industries experience constantly changing trends. The fashion industry is a well-known example.
• Precise inventory management helps to recognize and react to changing customer behaviour at an early stage.
• In this way, sales opportunities can be exploited and customer wishes fulfilled.

Speed and efficiency:

• Correct inventory management helps to optimize processes.
• Accepting an order, searching for products, putting missing goods on hold – all this takes time and increases the error rate.
• Teams that know what is in the warehouse can improve the order sequence.

Software from a single source – the optimal solution

The demands on inventory management are high. This is why medium-sized companies today use ERP systems almost without exception. They also often use supplementary software or Excel sheets. This combination can lead to errors and time-consuming data evaluation.

Integrated systems, on the other hand, have an advantage:

• They enable standardized data preparation and evaluation.
• They make it easier for employees to familiarize themselves with the system logic.
• The cost of introducing supplementary systems is low.
• Data migrations can be avoided.

Inventory 365: The perfect complement for Microsoft Dynamics Business Central

Inventory 365 is one such system. It integrates seamlessly into Microsoft Dynamics Business Central. The solution enables simple and convenient reconciliation between the item movements in the warehouse and the G/L account postings for current assets in financial accounting. The system recognizes the differences automatically. This allows errors to be rectified quickly. An extended posting matrix provides additional transparency in the income statement and balance sheet.

With Inventory 365, you can optimize your inventory management and create the basis for efficient processes, satisfied customers and sustainable success.

Find out more about efficient warehouse management and attend one of our upcoming webinars to learn more about our solution.

Click here for information and to register.

The balance sheets of trading and service companies differ considerably. This is mainly due to the inventories that trading companies hold in their salesrooms and warehouses. Goods in transit (“floating goods”) must also be included in the annual financial statements.

In practice, the valuation of inventories proves to be extremely complex. Below you can see the most important valuation categories that have a direct influence on the valuation.

Categories at a glance: How to value your inventories

Limited shelf life
Whether food or products from perfumery and cosmetics: many goods and products only have a limited shelf life. At the time of accounting, they must therefore be written down to their expected selling price. The loss in value is recognized as a write-down on inventories in the income statement.

Fluctuating prices
Fluctuating energy prices are a recurring topic of discussion. Food prices also fluctuate, depending on weather conditions, harvest volumes and demand.

In accordance with the lower of cost or market principle, goods with strongly fluctuating purchase prices must be recognized at their lowest possible value on the balance sheet date. There is a choice between the purchase price and the current market price. Depending on the price development, there is a devaluation and value adjustment. This is recognized as an expense in the income statement.

Degree of realizability
Whether household goods, books or clothing: Products can be damaged during transportation, storage or presentation. This reduces their value.

In retail, goods are generally categorized into A, B and C goods:

• A goods are fully functional and marketable. They are recognized at full value.
• B goods have slight defects. However, they are still marketable and are recognized at a discount corresponding to the reduction in value.
• C goods have significant defects or damage. They can only be sold at a discount or as spare parts. They are recognized at their residual value.

Storage period
“Slow-moving items” are products that remain in stock for a long time. They represent a risk for retailers, as they tie up capital and run the risk of being damaged. In this case, they can no longer be sold at their full value.

On the other hand, there are “fast-moving items” that only need to be stored for a short time thanks to high demand. The risk of loss of value is low. They represent a low financial risk.

Sales risk
Specialty items have a high sales risk. Demand fluctuates, which is why they are difficult to sell.

Ventilators, for example, were in high demand during the pandemic. In the meantime, many facilities have covered their needs for years. Goods like these may have to be devalued.

In contrast, standard items have a low sales risk. They are easy to procure and sell and can therefore be recognized at their full value.

Additional categories:

Seasonal items
Christmas, Easter or carnival items are valued at their market value on the balance sheet date. If they are difficult to sell after the season, they must be written down.

Trend articles
They are particularly well known in the fashion industry: trend items that are often only on sale for a short period of time. A hype is followed by a sharp drop in demand.

As long as the trend continues, trend items can be recognized at their full value. If the trend subsides, they must be devalued.

As you can see: According to the lower of cost or market principle, goods and products must be recognized at the lower fair value. This initially simple-sounding rule proves to be complicated and extremely complex in practice.

Warehouse valuation with “Valuation 365”

Our “Valuation 365” app for Microsoft Dynamics Business Central makes life much easier for retail companies. The advantages:

• Automation of the valuation
• Reliable compliance with the lowest value principle
• Flexible adaptation to individual needs
• Improved transparency
• Increased accuracy
• Reduced risk of errors
• Improved decision making

Visit one of our upcoming webcasts and see for yourself how “Valuation 365” can simplify, accelerate and refine the valuation process in your company. To the information and registration.

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.

These are the obvious ones:

Wrong decisions

Wrong investments or an unattractive range of products: wrong decisions such as these arise due to inaccurate or incomplete information caused by a lack of data quality. This harbours the risk of companies losing their balance and becoming less competitive.

Increased costs

The effort involved in correcting incorrect data means a loss of time and money. It also ties up employees’ time budgets for creative activities. For small and medium-sized companies in particular, the cost of troubleshooting can be a considerable burden.

But that’s not all.

Reputation

One aspect that is often overlooked is the impact on a company’s reputation. Poor data quality can seriously affect the confidence of investors, customers and other stakeholders. This can lead to negative media coverage, a drop in share price, reluctance from potential business partners and loss of customers.

Compliance

Another underestimated risk is legal liability. Companies must provide accurate financial information to avoid legal consequences such as fines and legal action against the company and its executives. A systematic approach to data security is therefore essential to minimise compliance risks.

Insurance problems

Incorrect information due to poor data quality can lead to problems with the insurance company. Insurance companies rely on accurate data to set premiums and assess cover. This can result in the company losing insurance cover or having to pay higher premiums.

Extended process times

Poor data quality can lead to longer process times, for example in order processing, credit decisions, customer service or planning and budgeting.

A proactive approach to data quality not only helps to minimise financial and legal risks, but also strengthens stakeholder confidence and improves the company’s overall performance and competitiveness. In an increasingly data-driven business world, the quality of data is critical to the long-term success of an organisation.

Secure data quality with Inventory 365

The stock value can not only save time and money, but also spare your nerves. Quickly identifying differences between stock accounting and financial accounting, uncovering incorrect postings, analysing details and taking action to correct them – all this will be presented in one of our next webinars. Visit us for more information and to register:
Webinars.