Adding and managing inventory for Revenue Stream
Many service-based businesses don't have any inventory, because they only offer services. For example, an attorney's office doesn't have any raw materials or completed goods in stock. They just do the work and then bill for their time.
A product-based business, on the other hand, needs inventory. A furniture manufacturer must purchase raw materials to make its products. Then the finished products are held as inventory until they're sold to customers.
Inventory purchases and sales play a major role in your company's cash flow, so Upmetrics' inventory calculator helps you plan for the income and costs.
In this article
Beginning with direct costs:
If you're using the Inventory calculator in Upmetrics, you'll want to pay special attention to the cost of sales or direct cost entries in your forecast. In a product-based business, Upmetrics is working on the assumption that your cost of sales is all "costs of goods sold," or the cost of producing your product. (That excludes Direct Labor costs, which are not calculated into your inventory.) So the Inventory calculator in Upmetrics begins its calculations with the totals in your Cost of sales entries of that revenue stream.
If you're not sure that all of your Cost of sales entries are inventory-related, you may need to update some of them. For more details, read What is the difference between direct costs and expenses?
Enabling inventory tracking in Upmetrics:
In your financial forecasting tool, Navigate to revenue tab and click on edit button on Product based Revenue Stream for which you think you will enable revenue tracking :
In the edit wizard that appears, Make sure the revenue stream type should be Unit Sales :
Note: Inventory tracking can only enable for Product based or Unit Sales revenue stream. And this revenue stream should have at least one "per unit cost of sales" added into it as shown below.
In revenue stream form, scroll down to the inventory section and moves the Inventory Tracking switch to the ON position.
Days to keep on hand: Then adjust the first setting, which is Days to keep on hand. This is the number of days of inventory that you want to keep in stock. Upmetrics will use your cost of sales to calculate the right amount for each period. When the cost of sales has accumulated to a point where you have less than the minimum amount of inventory on hand, Upmetrics will forecast a re-order. That purchase will appear in your Balance Sheet and Cash Flow. Note: It's generally smart to keep your inventory to the minimum that you need, since buying inventory means tying up cash that could be used for other things. Many businesses carry too much inventory, and that hurts their cash position.
Minimum Inventory Order: The second setting is the minimum order size. When Upmetrics finds that you need more inventory, it automatically builds an order into the Cash Flow. But, if you are only a dollar short of what you will need, you probably don’t want the software to plan on ordering a dollar of inventory. Suppliers typically have a minimum order size. So, this setting establishes the minimum order size, which ensures that any new orders are always for a reasonable amount.
Enter the desired minimum order, and then click the Apply button to save it:
Note: If your cost of sales exceeds the amount of remaining inventory you have on hand, Upmetrics will calculate an inventory order that is either the amount you need to cover your current sales or the minimum purchase amount you specified, whichever is larger.
Where does this entry appear in the financial statements?
An inventory doesn't appear in the Profit and Loss table, but your cost of sales does, and these form the basis of Upmetrics' inventory calculation.
In the Balance Sheet, the value of your inventory is shown for each month or year, calculated according to the basic formula of inventory calculation:
In the Cash Flow statement, you'll see a "Change in Inventories" line, showing how much inventory value the company gained or lost in a particular period. This number is based on both the amount of inventory your company has purchased and revenues from inventory sold, in that period. The resulting number is a net change, as shown below: