Inventory — The Overlooked Asset

I’m not an attorney nor a CPA, but here are some facts I’ve learned over the years about the Business aspects of Inventory.

It doesn’t really matter what your CPA requires or suggests about your Inventory for your taxes, (they are probably right). Certainly follow their advice and be consistent from year to year.

But, your Inventory is the largest asset your business will likely have. You really should be tracking as much about your inventory and its performance as you can. If it’s just sitting around, its like cash in the mattress.

What is your Inventory ROI? (Gross Profit for a period divided by the average value of your Inventory). A higher return is better use of your cash (or credit.)

What is its turnover rate? (COGS for a period divided by Average Inventory value for the period.) This how many times your Inventory turns over or is consumed and replaced during the period. Higher turnover is better use of your cash (or credit).

What are you doing to improve each of these measures?

As for taxes, IRS Schedule C asks if you have inventory, then requires you do the calculation for COGS. The Small Business Taxpayer threshold for inventory exemption is $25M, not $1M. But, the inventory is only exempted from reporting if you class it as “incidental”. If you are doing anything retail, online, Amazon, or eBay, then your inventory is Not incidental, and must be properly accounted for.

(If you want to change how you do accounting to the IRS from prior years, then you need to submit a form 3115.)

If you haven’t already done so, Calculate your Ending Inventory value.

For Amazon Sellers, Run an Amazon Report / Fulfillment / Inventory / Monthly Inventory History for December for your ending FBA Inventory. Then physically count any of your inventory stored and stashed at home or your warehouse.

Add it all up times the cost of each – This is your Ending Inventory for last year, AND it is the Beginning Inventory value you will use for next. year

The COGS (Cost Of Goods Sold) calculation is very simple.

The value of your Beginning Inventory PLUS the value of your Purchases (of new inventory purchased during the period) MINUS the value of your Ending Inventory is the value of the COST of Goods Sold for section 3 of IRS Schedule C.

Watching your Inventory performance is just as important as managing your expenses, but gets less attention. Stale inventory doesn’t sell well. Paying too much for inventory makes it difficult to be profitable against lower-cost competitors. Inventory in your garage can’t sell. Money invested in inventory can’t be used for anything else.

Inventory is a Big Deal.

What questions do you have about Inventory?
John L

Entrepeneurship Goals Planning

Focus On the ONE Thing

As a management consultant, I spent much of my consulting time helping clients discover and focus on the most important aspects of their business. They were often overwhelmed with tasks and projects that had little to do with overall success.

That’s where I helped them define their ONE Thing.

A business needs to make a profit, and have positive cashflow. Without both, they will eventually die.

But, the ingredients for these two essentials range all over the map, and depending on the business, might not apply – right now. Customer acquisition, sales process, followup, expense control, inventory control, customer care, vendor relations, banking — just some of the areas of concern.

The management task is to identify the obstacles and bottlenecks to success, and work out plans and procedures to overcome.

Here is how I’ve helped clients. I’ve given them a checklist or roadmap for making progress.

  • Of all the things that need to be done, what is that ONE Thing you need to Focus on – right now – for success?
  • Can you Define it, Describe it, Picture it?
  • What are the obstacles you need to overcome?
  • What resources do you have, or need?
  • Make a plan. Create Processes and Procedures to support this ONE Thing.
  • Focus, Aim, Zero-in, Prioritize, Measure.
  • Remove distractions. Shed the minutiae. Focus of the ONE Thing.
  • Work, work, work on the ONE Thing until you’ve conquered it. Then move on to the Next ONE Thing.
  • Track progress. Reflect. Evaluate. Refine.

I don’t know what your ONE Thing is. I do know you have one, and that it’s probably languishing and begging for attention. If you’re like me, it’s easy to procrastinate on the important stuff – because it might seem too hard.

Buck up! It’s the most important thing you can be working on.

Get. It. Done!

John L



Amazon FBA Attitude eCommerce Planning

Making the Most of the Cold and Dark of Winter

Baby, It’s COLD Outside!

Here in NW Oregon, it rarely gets below freezing, and even more rarely, it snows. Generally, we can expect snow every few years. That’s one reason we get “snow days” with the falling of a single snowflake.

So, we bundle up and light a fire, brew the hot chocolate, and burrow in for the cold fronts.

It’s time to reflect and narrow down our actions for the coming year.

Our Amazon FBA business ended 2016 about 20% ahead of 2015. Pretty darn good. We hope for the same for 2017.

Unfortunately, our best selling category is dwindling in inventory and availability. We found them in closeout and discontinued stock from various brokers. We’ve sold tens of thousands of them for an average NET Profit of $5.

But, we’ve probably found them all, and they’re nearly gone.

We’re contemplating Private Label manufacturing. Sandi found her China importer, and we’ll consult with her to evaluate feasibility.

And, we’ll branch out to find new categories of products we can source and re-sell for a profit. This is the continuing task for an Amazon Seller, or for anyone working in retail ecommerce .

It’s good to have our bundled warmth to give us comfort. The future is unknown. But we can predict with enough data.

Plan our Work. Work our Plan.

John L

eCommerce Entrepeneurship

Rhythms of the Farm

We bought a farm back in Oct 2015, and moved in during Feb 2016. We have had a beautiful time moving and getting accustomed to life in a rural setting.

It is Heaven on Earth.

What we’ve known for all our lives is that there is a season for everything.

The farm is a living example of these seasons.

For example, we plant in Spring. We cultivate in Summer. We harvest in Fall. We regenerate in Winter.

What we have to do is to work our daily activities into these seasons so we can take advantage of the time of year for maximum advantage. Trying to plant seeds in the Fall normally is asking for crop failure. Cultivating in Winter here in Oregon just gets the garden onto a sloppy bog.

Do the right things at the right times.

So, too with business.

Sell what’s already selling. Sell during the seasons that your products usually sell in.

Control expenses to have a profit at the end of business.

Don’t try to change human behavior. Work with it instead.

Make work schedules that fit into the flow of your business.

Do the work.


Basics Planning Profits

Planning for Business Success

I’ve had several businesses. I’ve failed, and I’ve succeeded. Turns out that the difference between success and failure is just some small details. Details that often get overlooked in the crush of daily activities.

You either move towards success, or you move towards failure. You get to choose.

First, The Big Picture