Do you know what your business inventory is? If your run a construction firm or a manufacturing business then it matters a lot for your profitability.
Your inventory includes the value of raw materials, the value of work in progress and the value of any finished goods and you must report on it when preparing your annual business financial reporting.
What is it? Work in Progress is goods part way through production: they aren’t ready to sell yet, but you’ve incurred expenditure on them since they were raw materials.
In the construction industry it is almost inevitable that you’ll be part way through a building project at your financial year end. When working on a housing development or an industrial development these projects can take months or years to complete and your business capital is tied up in the project.
Why do it? You are legally required to declare all assets and liabilities of the company, so this is a compelling reason to include these report in your annual financial statements!
It’s also important for the health of your business to report on your inventory. If you have a large chunk of capital tied up in an ongoing project you don’t want that value to be ‘invisible’ or missing from your business. If you’re looking for investment, for example, lenders will require a report on your inventory in order to assess your company’s profitability.
How can a bookkeeper help?
Inventory accounting is not an easy task. It is usually only done at the opening and closing of a financial period; the beginning and end of the financial year is most common.
You need a consistent system in place for your inventory calculations and you’ll benefit from advice from your bookkeeper. We can help you with minimising your tax liability and keeping the system reporting accurately from a lender or investor’s point of view.
For example, if your business keeps a lot of finished goods in order to fulfil short delivery times it will be best served by one method of calculating value and if your business has a lot of work in progress at any given time (as in the construction industry) you may benefit from a different set of policies or methods.
Would you like to check you’re getting value for money in terms of your bookkeeping support? We’re always happy to have an informal chat: if you’d like to see if we can help please get in touch with Diane on 01825 763378.