Sales Departments, Product Codes and Inventory Settings: Using Spire to get a clear picture of your company’s profitability!
Are you spending time trying to analyze profitability by product line in your business? Perhaps you don’t have your products broken down by the appropriate Sales Departments or Product Codes.
How can you quickly make decisions with this limited visibility into your Financial Reports? You know your business. You can probably pull numbers out of your head like that. But, if you need to analyze a specific product line’s performance or a specific profit center, how much effort is needed to get that information?
If you want to make the most of Spire’s capabilities, this post will be helpful. But first, we have a few questions for you:
- Are your Sales being lumped into just one Revenue Account in the GL?
- Are all your Costs being lumped into just one COGS Account in the GL?
- Is the total value of your Inventory being lumped into just one Asset Account?
- Are your staff assigning improper settings when they are creating your inventory items?
If you have answered yes to any of these questions, don’t worry. With just a little bit of setup/cleanup you can get more from your data!
The link between the Inventory Item and your General Ledger is the Sales Department. Each item, whether stocked or non-stocked, has a Sales Department. Each Sales Department consists of three account fields: Inventory, Revenue and Cost of Sales. Any transaction (Sales Order, Purchase Order, Inventory Adjustment, Transfer, and Production Order) that involves an inventory item uses its assigned Sales Department to create the necessary journal entry. If you do not have Sales Departments in use, then the accounts assigned in Company Settings>Special Accounts section will be used automatically.
When it comes to reporting, if you want to divide your revenue based on your business’ category of items, then each item must be assigned the proper Sales Department. If you forget to select the correct one, the default Sales Department is used, which may not be ideal. With this in mind, we often suggest that the accounts in “Special Accounts” are generic, almost like a catch all! If transactions are being posted to these default accounts you can analyze and correct these allocations at month end.
Furthermore, if you use Product Codes, you can link a Sales Department to each Code and thereby align the proper accounts based on the item’s type. And, to take it one step further, you can turn on the feature to “Enforce Product Codes” and never miss setting up your items properly!
Not only can Product Codes link to the proper Sales Department, but you can set a minimum margin percentage per Code. Financially, this is so valuable to managers and owners to ensure items are not sold below costs or below certain levels. Visually, a user will see a red text box when they change the price on an item which yields a lower average margin than desired. You can also program a custom message in the Company Settings>Sales Order module which will appear when you hover over the unit price.
Spire’s powerful controls can help you properly capture the revenue and cost of goods sold generated by the movement of your inventory and help you focus on profitability from your sales team. If you would like us to help review your system or assist with making changes to give you more visibility into your sales data, let us know. We are always here to help you get the most out of your software.