Beginning inventory: Why it’s important and how to calculate it
How to find beginning inventory
There are a few different methods that you can use to calculate your beginning inventory. The most common method is to take a physical count of all the products you have in stock at the start of the period.
This method may be sufficient if you have a small business with a limited number of SKUs. However, taking a physical count can be time-consuming and expensive if you have a large inventory.
Another method that you can use to calculate it is to look at your sales records from the previous period. This method is most accurate if you have a good system for tracking your inventory levels.
If you use a software program to track your inventory, you can usually generate a report showing you your beginning inventory levels.
Of course, this assumes that you’re abiding by the following inventory management best practices:
- Conducting regular inventory audits.
- Using a robust inventory management system.
- Keeping accurate inventory records.
Otherwise, no report you run will accurately reflect your true beginning inventory numbers.
How to find beginning inventory when using multiple warehouses
While a manual count works for smaller operations, it’s inefficient for businesses that utilize multiple warehouses. In these cases, businesses need to look at their past inventory records to see how much product they had on hand at the start of the period.
Inventory management software can be a helpful tool for businesses with multiple warehouses. Software platforms like SkuVault Core can track inventory levels across all locations and generate reports showing inventory levels (along with a slew of other relevant metrics).
If you don’t have access to inventory management software, you can still calculate your beginning inventory by looking at your sales records from the previous period. This method may not be as accurate as a software program, but it’s better than nothing.
How to value inventory
If you’re an ecommerce business, it’s imperative to have a firm grasp on the value of your inventory at any given time.
Just to clarify, inventory and product-on-hand are not the same. Inventory is the sum total of all your raw materials, works-in-progress (WIP), and finished goods. Product-on-hand is a subset of inventory representing just the finished goods available for sale.
In other words, your beginning inventory includes product-on-hand from the previous period and any new inventory you’ve received since then.
Its value can be calculated using the following formula:
Beginning Inventory Value = (Number of units on hand * Unit cost) + WIP Inventory + Raw Materials Inventory
Unit cost represents the average cost of each unit of product. This can be calculated by taking the total cost of goods sold (COGS) divided by the number of units sold. WIP and raw materials inventory should be valued at their historical costs.
How to use inventory to calculate COGS
Your beginning inventory levels will directly impact your cost of goods sold (COGS). COGS is a key metric that ecommerce businesses use to track their profitability. It represents the total cost of all the products you’ve sold during a given period.
You can calculate your COGS using the following formula:
COGS = (Beginning Inventory + Purchases) – Ending Inventory
As you can see, beginning inventory is a vital component of this equation. If your levels are inaccurate, then your COGS will be as well.
This is why it’s so important to keep accurate records of your inventory levels. Not only will it help you make better strategic decisions about your business, but it will also ensure that your financial statements are accurate.
What beginning inventory?
If you sell products online, it’s important to know how to calculate your beginning inventory. It is the number of products you have available for sale at the beginning of a period. This could be the start of a month, quarter, or year.
Why is knowing your beginning inventory important?
Knowing your beginning inventory is important because it helps track your inventory levels and see how your business is performing. It’s also necessary for calculating your cost of goods sold (COGS).
Keeping track of your inventory levels is important because it helps you to avoid stockouts. Knowing how much inventory you have on hand, you can order more products before you run out. This helps to keep your customers happy and to avoid lost sales.
Knowing your beginning inventory is also necessary for calculating your COGS. Your COGS includes the cost of all the products you’ve sold during a period, minus the beginning inventory. This helps you see how much it costs to produce and sell your products.
Beginning inventory is a critical metric for ecommerce businesses. It’s important to know how to calculate it and track it regularly. Doing so will help you to run your business more effectively and avoid lost sales.
What’s the difference between beginning and ending inventory?
Beginning inventory is the value of all the products you have on hand at the beginning of a given period. Ending inventory is the value of all the products you have on hand at the end of a given period.
The difference between beginning and ending inventory levels (often called inventory turnover) can be calculated using the following formula:
Beginning Inventory – Ending Inventory = Inventory Turnover
So why would anyone need to know their inventory turnover? Well, it’s actually a pretty important metric.
The inventory turnover formula is a good way to measure the efficiency of your inventory management. A high inventory turnover means you’re selling through your inventory quickly, which is generally good.
It means that you’re not investing too much capital in stock, and you’re not at risk of your products becoming obsolete.
On the other hand, a low inventory turnover can be indicative of some problems. It could mean that you’re not selling enough or that you’re carrying too much stock. Either way, it’s something worth examining in your business.
There are a few different ways to calculate inventory turnover, but dividing your sales by your beginning inventory is the most common.
So if you had $100,000 in sales and $50,000 in beginning inventory, your inventory turnover would be 2.
This means that you sold through your entire inventory two times over the course of the period.
This number will vary depending on your business, but a turnover ratio of four or more is considered good as a general rule of thumb.
Final thoughts on beginning inventory
To summarize, keeping accurate records of your beginning inventory levels is important because it can impact your cost of goods sold (COGS).
Other benefits of tracking beginning inventory include:
- More accurate strategic decision-making
- More efficient inventory management
- Better forecasting of future sales
How to monitor and manage inventory with SkuVault Core
If you’re looking for a way to streamline your inventory management, SkuVault Core is a great option. SkuVault Core is a cloud-based software that helps businesses track and manage their inventory levels (as well as many other important ecommerce metrics).
We designed it to help businesses save time and money by automating many tedious tasks that come with managing inventory.
Here are just a few of the ways that SkuVault Core can help you manage your inventory:
- Automatically sync inventory levels across all your sales channels
- Get real-time alerts when inventory levels get low
- Generate detailed reports on your inventory levels and turnover
If you’re interested in learning more about how SkuVault Core can help you manage your inventory, schedule a live demo!
