As an entrepreneur, it’s important to understand the operational components of your business and terminology. While you may understand the overarching structure and have a good feel for making decisions, as you grow, it will take more than that. We’re here to focus on stock and inventory and how they differ – because they do. Whether you create your own products or purchase finished goods, you can have both stock and inventory. Properly categorizing the two will matter when it comes to proper bookkeeping. Additionally, if you pursue financing or funding, lenders or backers will want an accurate representation of a business’s financials. Stock refers to finished goods that are ready to be sent to the consumer or purchased. Inventory on the other hand can include raw materials too. Even if you purchase finished goods, you may have raw materials. For example, if you package your own products or enhance the finished goods purchased, you may have inventory on hand.
While this is one example, it can get more complex than this. Here’s what you should know about stock versus inventory.
Stock vs. Inventory: What’s the Difference?
Simply put, the stock is the total supply of finished goods possessed by a business that is available for retail or wholesale. Inventory on the other hand can include both finished goods as well as components that are used to create the finished goods. Not all inventory is stock, but all stock is inventory. Hopefully, you’re following us here. To further your understanding, here’s a simplified breakdown of the differences and uses of stock and inventory.
- Includes finished goods, ready to be sold
- Stock is sold to generate revenue
- Includes finished goods in addition to raw materials or assets used in production
- Four main types of inventory include: raw materials, work in progress (WIP), finished goods, and maintenance, repair, and operating supplies (MRO)
What is an example of stock or inventory?
While we’ve explained the overview of stock versus inventory, here’s a specific example to help shed more light.
Let’s say you sell sunglasses. The stock would consist of all sunglasses that are packaged and ready to be shipped or sold to a customer.
Inventory on the other hand could include the lenses, screws, and all other materials you use to make the sunglasses. However, it also includes your stock of finished sunglasses ready for retail or wholesale. In some cases, a company may purchase the product, but it may not arrive ready for sale. In these cases, the company can still possess inventory as they have more inputs until the product is ready to be sold.
How is accounting for inventory different from stock?
Accounting for inventory is much more complex than accounting for stock. Inventory accounting should include finished products, work-in-process products, and raw materials. Furthermore, you will need to track these materials along the process in order for inventory levels to stay current. Advanced inventory tracking systems are one of the best ways to keep an accurate count of inventory. Additionally, they can help you know when it’s time to reorder or run sales to cut inventory loose. Unless you order completely finished products and sell them as they come you likely have inventory and stock.
Tips for managing stock levels
Inventory management is crucial, no matter how big or small your business is. Poor inventory management can have devastating impacts on a business. However, the answer is not to stock as much inventory as you can but rather to stock just the right amount and reorder at the right time. To determine when to reorder, you will need to know metrics such as how much time it takes to process or manufacture products and receive them or get them ready to sell. Here are some of our best tips for managing stock levels.
- Invest in an inventory management system
- Find-tune forecasting
- Utilize an approach such as FIFO (first-in, first-out)
- Identify slow-selling stock
- Audit your stock to ensure levels are accurate
- Always track stock
- Hire help
What else do you need to consider
As you aim to effectively manage inventory and stock, and separate the two, you will want to consider effective inventory management practices. Here are 5 factors that can impact inventory management.
Obviously enough, inventory and stock can absorb a lot of cash. Plus, systems to effectively manage it can be costly. However, failure to effectively manage inventory can lead to significant financial issues. Lay the proper foundation and constantly work to improve inventory management – it will pay off.
- Market demand
Market demand is important when it comes to understanding how much inventory to hold and when to hold it. It may take some time to perfect the formula.
- Theft or loss of inventory
Sadly, theft happens, and most often it’s internal employees doing the stealing. Property inventory management and security can help you identify theft faster and work to minimize it. However, it’s still something you should account for.
- Lead time
Supply chains are complex, and delays can happen. When considering lead times, expect delays and leave some cushion for them to arise.
- Forecast quality and quantity
Accuracy matters and quality matters. The larger your company gets, the more complicated forecasting gets, as does quality control. Do your best to keep a close hold on both fronts to help your business prosper.
How Kickfurther can help
Losing an accurate pulse on stock or inventory can lead to losses, missed sales, and other impacts. One of the main reasons accurate tracking is lost sight of is a lack of resources. Perhaps the lack of resources is by choice or perhaps it’s due to a lack of funds for resources.
Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you customize and control. With Kickfurther, you can fund your entire order(s) each time you need more inventory and put your existing capital to work growing your business without adding debt or giving up equity.
- No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.
- Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.
- Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.
- Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.
Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. By funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it – product development, advertising, adding headcount, etc.
Understanding the difference between inventory and stock is important, especially if you plan to keep up with demand. Operating a business relies heavily on metrics and planning. As your business grows, it can become harder to accurately track stock and inventory, but only if you choose not to invest in tracking it. If you need a boost in working capital to ensure you have funds to invest in operating efficiently and growing your business, lean on Kickfurther for help. Always be one step ahead as a business owner, your competition is waiting for you to skip a beat.