Having a clear understanding of inventory, what it is, how to manage it, when to manage it, and how to leverage it to scale your business is a necessary part of business growth. Inventory ManagementInventory— while it’s the very foundation of CPG businesses, it is often misunderstood and underutilized. Accountfully has seen entrepreneurs trying to manage inventory with complicated Excel spreadsheets that lag behind the needs of their business.
- Too often, brands produce based on past trends, but integrating real-time demand signals into your financial strategy can keep production aligned with market demand.
- When trade planning, it’s crucial to consider and report the different types of trade spend as some may be able to be allocated below gross margin, such as administrative fees or merchandising costs.
- Without the deep knowledge, you could be spending too much or too little or not have an awareness in a shift in these expenses.
- A positive cash flow means you have more money coming in than going out, while a negative cash flow means you’re spending more than you’re bringing in, which can be a sign of trouble.
- It includes the accurate tracking and analysis of inventory, sales and cost of goods sold, forecasting and budgeting, cash flow management, pricing strategy, and other components necessary to maximize profitability.
Trade Spend Management: Challenges & How to Avoid Them
There are a lot of questions and resulting actionable information buried in discounts and allowances and COGS. A handful of expenses fit between gross revenue and net revenue on the income statement. These expenses are related to discounts between the product manufacturer and the retailer that are used to impact sales to the end customer. CPG companies must assess the likelihood of inventory becoming obsolete and create inventory reserves to account for potential losses. This may occur due to changing consumer preferences or market trends or when a product is approaching its expiration date. CPG companies may also create inventory reserves to account for potential losses due to damage or deterioration of inventory.
What Do Investors Look for in CPG Brands?
For Consumer Managed Goods (CPG) companies of every size, trade deductions are often the second largest line item on the P&L — and the most difficult area to manage. Automated tools can also handle the complex task of inventory valuation to verify the accuracy of your financial statements. That, in turn, provides a clear picture of the true value of your stock, leading to better financial planning and decision-making. The consequences of CPG accounting mismanagement include missed opportunities, strained supplier relationships, and even difficulty paying employees.
The Ability to Leverage a Deep Industry Network
- The brand thought it could revolutionize the beverage market; however, it backfired.
- More often than not, food entrepreneurs and CPG business owners don’t have enough bookkeeping knowledge or industry experience to successfully oversee and execute their accounting needs.
- To guard against this, Accountfully helps clients identify when it’s an appropriate time to choose an inventory management system.
- Contact CJBS today to harness our expertise for your business’s advantage.
- This document tracks the movement of money in and out of your business over a certain period.
This is primarily due to high market saturation and low consumer switching costs, where consumers can easily and cheaply switch their brand loyalties depending on price or quality (real or perceived). Companies with high operating leverage tend to do better in bull markets and periods of high growth, as profits grow faster than revenue. Still, because of the fixated nature of the cost structure, they tend to get wiped out much quicker in economic downturns. For example, a sales change what are retained earnings affects accounts receivable and cash flow performance.
A CPG-specialized accountant analyzes your sales patterns, product turnover, supply chain costs, seasonal demand fluctuations, and storage expenses to pinpoint inefficiencies in how inventory is managed. Using this data, they help you adjust reorder points, ultimately improving cash flow and maximizing profitability. Many traditional lenders don’t fully understand the long payment cycles and cash flow challenges CPG businesses face. Say you’re a specialty coffee brand that’s landed a deal with a major retailer.
The sooner you build strong accounting practices, the better off your CPG brand will be. By understanding your P&L, balance sheet, and cash flow, you’ll have a clearer picture of your brand’s financial health. With that knowledge, you can make smarter decisions, avoid potential cash flow crises, and position your brand for long-term growth. And there’s even more that someone who specializes in accounting for CPG brands can do for you.
- These can include goods such as food, beverages, clothes, makeup, toilet paper, and other household products.
- This information takes time to set up, but once you do, it pays dividends in the long run.
- Even California’s Proposition 65, which mandates warning labels for products containing certain chemicals, can catch brands off guard, leading to costly fines if not properly handled.
- Consumers consume or run out of these goods faster and must replace them or do without entirely.
Staying on top of these metrics will put you in a healthy spot for the capital you need for growth. cpg accounting Propeller is an enterprise-grade financial partner that empowers companies to reach their full potential. Propeller offers a fractional model that can be a cost-effective alternative to hiring full-time talent too early.
For example, you might find a top-selling item has lower profit margins due to higher packaging costs. In this case, you can work on renegotiating supplier contracts and focusing resources on products with stronger margins. Running a CPG brand comes with financial challenges that most businesses don’t face. The need to track COGS precisely, manage perishable inventory, handle seasonal fluctuations, and navigate the sustainability conundrum makes CPG accounting a whole different game.
A slotting fee can be defined as an amount paid to retailers by CPG companies to have their products featured on its store shelves. Retailers recognize consideration received for slotting fees as a reduction of law firm chart of accounts cost of goods sold. If you have questions about your trade spend approach or need some support with your financial operations, we’re happy to chat. The validation process ensures that all deductions are legitimately based on agreed-upon trade deals and terms with customers. But for this process to work, you need to make sure everyone in your organization is playing their part.
