The Importance of Inventory Cash Flow in E-commerce Bookkeeping
Maintaining an organized, cost-effective inventory is crucial for the success of any retail e-commerce business. It goes beyond mere stockpiling of items for sale; it involves keeping track of inventory cash flow. Here's all you need to know about eCommerce bookkeeping and why inventory cash flow is so important.
Cash flow is the movement of money in and out of a business over a set period of time, and it plays a pivotal role in maintaining a positive profit margin. For e-commerce businesses, calculating cash flow specifically for inventory is essential. It entails tracking costs related exclusively to inventory, including purchasing costs, manufacturing expenses, and maintenance costs.
For example, if you produce all the clothing you sell in-house, you need to consider the cost of raw materials and equipment acquisition/maintenance in your inventory cash flow. Similarly, if you have bulk inventory that requires freezing, the cost of maintaining the freezer should also be included in the cash flow sheet.
Inventory cash flow management also involves tracking actual sales and accounting for inventory losses due to theft, spoilage, or damage. While minimizing inventory loss is a priority, being prepared to address it is equally important. Monitoring inventory cash flow provides crucial insights into the overall cost and value of inventory, allowing businesses to determine their net profit from inventory sales.
To estimate the value of inventory, businesses need to track the number of units purchased, the cost of manufacturing or purchasing each unit, and the planned markup for each unit. This comprehensive knowledge about inventory helps businesses make informed financial decisions and maintain a healthy bottom line.
