Wholesale Companies and QuickBooks

Although standard accounting and data entry for all aspects of your business need to be controlled and recorded, the focus of activities for wholesale businesses normally revolve around inventory control, tracking, and costing issues.

Not only do you need to accurately track purchases and sales of specific inventory items, but a variety of related procedures should be established and results closely monitored.

In a straight-forward wholesale environment here are just some of the typical activities, controls, and procedures that should be incorporated into your day-to-day activities and/or into your QuickBooks® accounting system:

Chart of Accounts – A logical, understandable Chart of Accounts is always the foundation for a quality accounting system. This is especially the case for QuickBooks® as the Chart of Accounts also creates the format for your standard Balance Sheet and Profit & Loss reports.
Inventory Items – Each Item that you sell needs to be named, coded, created, and properly linked to 3 accounts (Asset, Income, and Cost of Goods Sold). Additionally, opening quantities on hand and related valuation must be accurately recorded as of a specific date. QuickBooks uses the average cost method of accounting for inventory sales, and if this is not handled carefully, financial results will be critically flawed.
Sales Tax Codes and Sales Tax Items – These should be carefully established to meet your State’s reporting requirements (Sales Tax Codes and Items are attached to each Item, to each Customer, and to each Transaction in order to create the information that you need for reporting).
Sales Orders – Must be properly recorded at the right sales price, dated, and conveyed to various downstream recipients (e.g., customers, purchasing or warehouse, accounting, etc.)
Purchase Orders – Must be correctly recorded at the correct purchase price, dated, and conveyed to various downstream recipients (e.g., vendors, warehouse, etc.)
Item Receipts – These are to be completed by the Receiving Department to show exactly what was received in relationship to purchase orders.
Bills – Inventory and Purchase Order-related Bills need to be properly matched to Item Receipts and/or Purchase Orders.
Shipping and Handling, Fuel Surcharges, Rush Order Fees – These costly incoming and outgoing costs and income need to be assigned correctly and monitored for accuracy.
Profitability Checking and Control – When you are using an inventory system such as the one provided with QuickBooks, costs move from inventory into Cost of Goods Sold when the customer is Invoiced. Therefore profitability results for Inventory Items and by Customer:Job need to be checked regularly for reasonableness.

One of the most common errors that we see related to inventory with QuickBooks® is “negative inventory”. Entering transactions to “sell inventory that you don’t have” will create bad financial information. So, even in straightforward wholesale environments, we need to set controls to monitor for “Income with no Cost or unusual Cost”, and/or “Cost with no Income” scenarios.

Unique circumstances

There are a variety of unique circumstances and/or inventory-related needs that many wholesale companies encounter or undertake such as:

Drop-ship arrangements with suppliers (i.e., no inventory passes through our hands).
Importing of goods and determining appropriate inventory valuation due to the accumulation of costs involved in importing and/or foreign currency fluctuations.
Inventory returns to suppliers.
Inventory returns from customers.
Changes in inventory value, inventory spoilage, inventory shrinkage.
Erroneous inventory entries.
Needing to compute commissions on Sales made and/or on “collected” sales.
Inventory held in various locations and moved between locations.
Consignment inventory – inventory owned by others, but held at your location(s).
Inventory requiring serial number tracking.

This is not an all-encompassing list, but should give you a flavor of how unique each company can be. Each of these circumstances requires a knowledge of accounting, QuickBooks features and capabilities, financial controls, and how to establish reasonable internal procedures so that you can produce reliable internal information regarding your inventory levels and company profitability throughout the year.

Selecting the correct QuickBooks® (and/or third-party add-in) products

More so than in many other companies, a wholesale company usually needs to have a number of people using the system at the same time: Sales, Purchasing, Warehouse, Accounting, and Management all need simultaneous access to the company file. This makes it especially important to explore options in advance and carefully plan implementations or system changes.

In many cases, due to volume and resulting file size, number of users and security settings, QuickBooks® Enterprise will be the right answer. You should also consider all of your inventory information and tracking needs. If, for some reason, QuickBooks’ capabilities in the inventory arena aren’t a perfect fit for you, a number of powerful, third-party add-ins are available. These may allow you to still use all of the other user-friendly and flexible features of QuickBooks, but still obtain the specific inventory features that you require. We can help you find the right solution, and/or explore a combination of solutions to meet your specific needs.

Inventory Risks – Quantity, Valuation, Shrinkage

As has been previously discussed, one of the primary risks that you face in a wholesale company is faulty inventory quantity information. For instance, if your records say that you have 3 “droppits” on hand:

When a customer calls in and needs 5 shipped tomorrow, you may lose that sale.
Your Purchasing Department may see that your stock is low and order 10 more.
In reality, you may actually have had 30 in stock (and soon you will have 40). And of course we all know that having too much inventory on hand is a costly proposition!

Another area of risk involves faulty valuation: As a quick example, let’s say you have 3 “moppits” in stock at an average cost of $250 (total value = $750). Now an untrained employee sees that you have 7 on hand and increases your quantity by 4 without changing the valuation. QuickBooks® now computes the average cost at $107.14 each ($750/7=$107.14), so when you sell the next moppit at $350, your cost will be only $107.14 (instead of $250). Net result = bad information!

When you don’t have control over your inventory, you also face the risk of spoilage, theft, and other “shrinkage”.

Alternatively, if your inventory/accounting system numbers are right, and your controls are tight, it’s much easier to discover problems before they get out of hand.

So, to offset a number of inventory (and other) risks, you will want to implement a strong set of controls such as:

Weekly or monthly Item Profitability Reports (Follow up on unusual results).
Weekly or monthly Customer Profitability Reports (Follow up on unusual results).
Weekly or monthly Inventory Valuation Reports (To monitor for unusual changes such as negative inventory balances, unusual changes in inventory cost).
Open Sales Order Reports (Which Sales are waiting to be filled?).
Open Purchase Order Reports (Which Purchases are we waiting to receive?)
Weekly or monthly Company Balance Sheet (Do balances appear reasonable?)
Weekly or monthly Profitability Reporting and/or Budget vs. Actual Reports (i.e., How is the company doing? Are we on target in comparison to plan?)
Regular inventory counts and reconciliations to accounting records (Why are they different? What needs to be done to accurately correct the accounting records?)
Utilizing all of these reports so that you will be in a position to make informed decisions as inventory costs and/or financial conditions change.

Other QuickBooks Features

In addition to inventory tracking, you will probably want to use your accounting system to:

Perform a variety of basic accounting functions within an integrated accounting system (e.g., Accounts Payable, Credit Card Entry, Write and Print Checks, Invoicing, monitor Accounts Receivable, 1099s, etc.).
Segregate payroll and payroll tax cost for various types of employees into separate sections of your Income Statement.
In some cases, you may want to track Estimate vs. Actual results for Customer:Jobs.
Create a variety of financial reports that will provide information to help run the business more profitably.

You may also wish to utilize more advanced QuickBooks® features such as:

Budgeting.
Payroll preparation and related tax filings.
Fixed assets tracking.
Customizing and printing Forms.

Additionally you are probably looking for a system that:

Can be customized to match the specific way that you do business.
Can be managed in-house by trained accounting staff
Is reasonably priced, with minimal maintenance fees.

Fortunately, QuickBooks® and/or QuickBooks® Enterprise is an ideal match for most wholesale companies IF Lists are properly structured, IF adequate controls are implemented, and IF Sales, Purchasing, Warehouse, and Bookkeeping staff is trained in various specific aspects of wholesale accounting and reporting.

Lack of knowledge regarding these crucial accounting and business topics causes numerous errors and frustration, and can cost a business literally hundreds of thousands of dollars in lost revenues and excess cost. But we can help you solve a majority of the typical concerns faced by wholesale companies through intelligent planning, focused training and by providing additional assistance from qualified accountants and Certified QuickBooks Pro Advisors.

We can provide you with essential basics as well as advanced QuickBooks® applications knowledge. We bring extensive hands-on QuickBooks®, job-cost, and wholesale accounting experience to the table in these subjects.

We offer one-to-one Internet-based and/or on-site support and consulting services to clients throughout the U.S. We will help you determine how to build your QuickBooks® system to provide you with the information that you need to make more informed, and more profitable, operating, estimating, and pricing decisions for your wholesale company.

It’s Your Future

The most important benefit you will receive from accurate inventory, job-cost and overall company financial and profitability information is the ability to shape your own financial future. How?

When you are intimately familiar with your inventory quantities and cost, and your company’s financial data, you’ll be able to make smarter buying, pricing, and financial decisions.

That’s the real way to make a truly permanent and lasting change in your bottom line!

And we’d very much like to help you reach those goals,…Contact us today at 866-244-2228 (toll-free) to set a time for an initial phone conversation with one of our Certified QuickBooks ProAdvisors to discuss your situation.

We offer one-to-one support and consulting services to clients throughout North America, and industry-specific QuickBooks online training seminars as well.

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