Who Cares if Your Inventory is Out of Wack


Accountants love to talk about how important it is to have all your numbers “right.” They love to talk about how “accurate” they can get those numbers to be – in fact, “timely and accurate financial information” has got to be one of the most overused pitch by accountants.

Some of them might even justify that they are a great accountant because “they have to have their checkbooks balanced to the penny.” Who cares?

Take a single line item from the balance sheet that may come up at least once a year if you are in the fashion industry – inventory.

Scenario 1: Most accountants don’t care enough

A typical dialog may look like this:

Accountant: It’s the end of the year, we need to do an inventory count to make sure our inventory balance is accurate.

Entrepreneur: Why do we need to know it’s accurate?

Accountant: Don’t you want to know what your inventory is worth?

Entrepreneur: Yes, but by knowing, what do I have to gain?

Accountant: If your inventory is out of wack, then the financial statement wouldn’t reflect the reality.

Entrepreneur: So?

Accountant: ……

(or, they may continue to scratch around the surface of how it is important to know. Or maybe they’ll talk about tax filing requirements or some other “stuff.” But the truth is, they don’t know why. They just know that you should do an inventory count because that’s what their teachers and mentors and supervisor accountants taught them before. I know, because I was taught the same.)

Scenario 2: A good accountant would do

A truly remarkable accountant will help you uncover the why. And if we can’t find value in what we do, perhaps we should stop doing it all together?

Accountant: We don’t know if our inventory value is accurate – I think it’s important that we do something to resolve that.

Entrepreneur: What’s happening now that we don’t know?

Accountant: Well, I’ve heard complaints from sales and warehouse saying that it takes forever to process orders and that we often screw them up. (maybe we have a customer service issue here – but let’s move forward.)

Entrepreneur:: Hmm, so they are taking longer to fill the orders? Is the time significant? (something else we can look into, maybe we can reduce processing time, we can reduce wages per order and in turn increase our bottom line. But for the sake of example, let’s note this and move forward still.)

Accountant: The time it takes per order could be an issue. But I am more curious about the duration it’s taking. I had heard sales complain about how customers are choosing not to reorder shirts towards the end of the season when they run out. If we could ship the first order earlier, perhaps we’ll be getting more reorders?

Entrepreneur: That can be significant, let’s talk to sales and warehouse.

(Conversation with sales and warehouse reveals that customers are indeed choosing not to reorder when they run out towards the end of a season. Warehouse predicts that if they know the inventory count up front they can provide sales better information and increase shipping time by weeks or months. Sales predict that will give the retail outlets more time to place reorders – predicting an increase in 5% sales volume.)

Accountant: 5% of our current sales is around 125/150k. I think an inventory count looks like a good investment to start. We may even look into implementing some type of system to help us throughout the year if the cost is feasible.

Should we start coordinating with the team? What do you think? If you are not having conversations like this with your accountant then you are missing out. Happy new year folks. Remember, business needs drive accounting and that your accountants should always help you identify your problem.