3 Keys To Efficient Retail Accounting
The retail business has been around since time immemorial and it has grown to be one of the most prominent industries in the world. Managing and accounting the finances of a retail business is not an easy job, but it has to be done efficiently to ensure the business can diligently track revenues and losses.
Efficiency in accounting cannot be achieved without the right people in place. For that, you have to hire credible professionals who can diligently track revenues, losses, taxes, and business expenses.
Another important aspect of accounting is financial reporting. Therefore, you also have to hire professionals that are capable of making financial reports to various stakeholders, such as the controller and comptroller. To know the difference between the two, you can read up here.
What Is Retail Accounting?
Retail accounting is a method used to track and estimate remaining inventory. Essentially, retail accounting is a tool for inventory management. The process involves estimating the current value of your inventory rather than doing it manually. To arrive at an accurate value, you have to take note of the initial at-cost inventory value, new at-cost inventory value, your sales or revenues for the applicable period, and the markup you place on your items.
For example, if you own a retail store selling various types of skin care products and makeup brands and your initial at-cost inventory for the first quarter of the year is worth $50,000. For the next quarter, you purchase $15,000 worth of products to replenish your inventory. This puts your total at-cost inventory at $65,000.
Suppose you recorded sales for the quarter is $30,000 and your markup is at 20% for each item. Multiplying the two values, you’ll get $6,000. Finally, you have to subtract this value from your at-cost inventory value to get the current value of your inventory. That would be $65,000 minus $6,000, which is equal to $59,000. In other words, your current inventory is valued at $59,000.
The process seems tedious when presented that way, but once you get the hang of it, you’ll find that it’s actually easy. However, there are ways to make the retail accounting process more efficient. These tips are discussed below:
Automate The Process
Since the process of retail accounting is pretty straightforward, you may use a program that can automate the job. You can search for a robotic process automation (RPA) system or RPA services provider for financial services that can automate repetitive tasks or calculations.
Investing in a retail accounting automation tool will help you streamline the process. You don’t have to manually write down every change in inventory at-cost valuation to arrive at an estimate. With the automation tool, you can simply type in the relevant values and the program will have an answer within seconds.
Automating the retail accounting process will also help the business keep track of inventory costs in real time. Since prices can be compared from quarter to quarter, retail business owners can easily detect changes in inventory costs and anticipate possible surges or decreased market demands based on seasonal cycles and trends.
Keep Accurate Records
To ensure that you’re keeping accurate records, you can use a point-of-sale (POS) system. This technology will help you record every transaction made in the retail store and keep complete records of all incoming goods.
It’s important to have accurate records of your sales and inventory cost. Otherwise, you’ll be looking at erroneous numbers every quarter and have false impressions. Wrong estimates might cause your retail business to have excess inventory or deal with shortages. Both scenarios will result to a loss of revenue and market opportunities.
Take Note Of Price Changes
If the nature of your retail business requires you to adjust prices frequently, you have to constantly take note of these changes to get a more accurate estimate of your inventory value. Aside from price changes, you have to make adjustments in your figures when you increase or decrease your markup. Being mindful of these changes will ensure that you will arrive at realistic estimates once you do retail accounting.
Retail accounting is essential, especially if your retail business is frequently affected by seasonal fluctuations. Therefore, investing in an efficient retail accounting method can help in inventory management. Automating the process, keeping accurate records, and taking note of price changes will enable your business to calculate an accurate inventory value and make sound decisions in procurement and logistics. Moreover, your retail business can prepare for seasonal demands and keep a balanced stock of products.