QuickBooks for Manufacturing: Unlocking its Full Potential
Taxes and audits and VAT, oh my!
For the skim readers: You can use this blog to better understand how to use QuickBooks for manufacturing, how to find and fix the negative inventory issue, and what steps you can take to optimize your business.
You might have pursued your dreams to start your own business to sell your manufactured goods, but you probably also quickly learned that managing your own business isn’t a song and dance.
That’s why we wanted to help you optimize your QuickBooks for manufacturing.
But firstly, why QuickBooks?
A lot of scaling manufacturers start off with QuickBooks because it helps you with the daunting task of handling your company's finances and, depending on which package you purchase, inventory management.
However, for manufacturers, this does come with limitations, and if this is all news to you, we’d recommend checking out this article on QuickBooks inventory management to get a better understanding on how it works.
But if you’re a manufacturer who has already started using it, we’re going to look into QuickBooks manufacturing, how manufacturers can use it for inventory management, how to identify and fix negative inventory, and our four sure-fire steps you can take to optimize your small business manufacturing for QuickBooks.
Consider this article your ruby slippers and let’s begin.
PRO TIP: This blog is your cake on how to manage your manufacturing in QuickBooks, but of course you want the cherry on top too, right? Our small business inventory management guide will help you unlock the secrets to success and maximize your business's performance.
Using QuickBooks for Manufacturing
FYI: We’re looking at QuickBooks Online for manufacturing purposes. You can use desktop versions of QuickBooks, but bear in mind that they are more expensive and are rather tailored to medium and large sized businesses.
Using QuickBooks for manufacturing is possible. However, the built-in inventory management system is designed mainly for businesses tracking the stock levels of finished goods.
There is a way you can monitor your more granular raw material, such as the nuts and bolts that go into your products. Although, QuickBooks manufacturing doesn’t track these expenses or calculate your cost of goods sold based on the materials you use.
You'll monitor your inventory in one of four categories:
What we’ll be focusing on is non-inventory items mainly, as this is where you’ll be storing your raw materials and components.
The biggest issue with using QuickBooks for manufacturing is that you can save how much raw material you have stocked, but you can’t convert that into a finished product.
In manufacturing changes to your raw material levels affects your finished product stock but QuickBooks doesn’t register this.
Of course, it's fine if you're using your raw material to repair damaged stock, but that is the exception of doing your raw material inventory management with QuickBooks.
Either way, this can be an issue, considering you’re going to have to update your product levels manually every time you finish a new project. Otherwise, you run the risk of going to Ship Negative.
But, what is this?
What Is Negative Inventory in QuickBooks Manufacturing?
Negative inventory is when you generate an invoice in QuickBooks manufacturing, but you didn't update the inventory beforehand.
For example, you currently have a product level of zero on your QuickBooks manufacturing system but have just finished a manufacturing order. In a rush and to fulfill a sales order, you ship a product for delivery and generate an invoice for payment.
QuickBooks will update the inventory level as –1.
This might not sound like a big deal. But negative inventory can cause problems such as QuickBooks incorrectly calculating the average costs. Meaning if you generate any inventory valuation type reports in QuickBooks online for manufacturing, it will be incorrect.
Unfortunately, if this issue occurs, it’s not a straight forward fix.
How to Find and Fix Negative Inventory When Using QuickBooks for Manufacturing
To locate any negative inventory, you’ll need to run an Inventory Valuation Detail (IVD) report in QuickBooks:
1. On the QuickBooks Dashboard select “Reports” and select “Inventory Valuation Detail”
2.2. On the drop-down menu for “Dates” select “All” to get an entire overview of your inventory movement.
3.3. Under the QTY On Hand column, you’ll be able to see at which point negative inventory has occurred.
So, you’ve found when negative inventory has taken place, so let’s move onto how to fix it:
1. Select the negative inventory under the “QTY On Hand”
2. If you’re legitimately able to do so, adjust the dates of the bills or invoices so that the bill date is set before the invoice dates
So, as you can see, it is quite easy to fall into negative inventory. And this is why using QuickBooks for manufacturing becomes tricky due to not being able to convert raw materials into final products.
So, the big question.
Is QuickBooks Good for Manufacturing?
Let’s cut to the chase, QuickBooks for manufacturing isn’t ideal.
It’s got your business covered for tracking your finances and even handling some inventory. But, the long and short of it is QuickBooks isn’t designed to support a modern manufacturer, at least in terms of running the production side of the business.
You’re still going to need to figure out how to:
Save your BOMs;
Plan production; and
Track inventory at different locations.
That’s why we’ve put together these four steps for you to follow that’ll help you optimize your small business manufacturing for QuickBooks.
Four Ways to Improve Using QuickBooks for Manufacturing
Once you have learned about the QuickBooks for manufacturing limitations and how to avoid getting into negative inventory, you can start to overhaul your manufacturing business by following these steps.
1. Eliminate Bottlenecks
A bottleneck is a term used to describe a point along your manufacturing processes where production slows down for various reasons, such as a tool being in use frequently or even running out of inventory.
So, how do you phase out bottlenecks from your production?
— Improve Your Process
Figure out where your bottlenecks are occurring and then decide which approach you need to take to fix this. This could be in the form of remapping your production known as routing manufacturing.
— Implement Safety Stock
Another tactic to take is to use safety stock. So, when inventory begins to quickly run out due to an increase in orders, you’ll have a buffer of inventory to help you fulfill orders as you purchase more material and finish your manufacturing orders.
— Calculate Your Manufacturing Lead Time
Calculating your manufacturing lead time, which is the period from scheduling production to completing the finished product, will allow you to get an overview of your operations for each product. By having this, you can figure out exactly where in your production process is prone to bottlenecks, address this issue, and potentially lower your lead time.
2. Eliminate Waste
All of this will be reflected in your Chart of Accounts.
Eliminating waste isn't just changing the process of how you handle any discarded raw material during production, but how you run your QuickBooks manufacturing in general.
A practice often referred to as lean manufacturing.
— The Seven Mudas
When a business wants to implement lean manufacturing into their business, they follow a step-by-step plan called The Seven Mudas. However, just as a starting point, we’d recommend looking into Transportation first, how you move inventory around your shop floor, because this can be a quick and easy fix that’ll streamline your production.
— How You Store Inventory
When using QuickBooks for manufacturing, it is essential to understand how the built-in inventory management works. By default, QuickBooks tracks inventory using the first in, first out (FIFO) system. Basically, this means whatever is placed into inventory first, is the first to be removed.
However, regardless of if you’re a make to stock or make to order business, this is a good system to follow as it’ll help you better understand your product's performance in the marketplace and eliminate any potential dead stock from building up.
3. Develop your master production schedule
Your master production schedule (MPS) is going to be the backbone to your entire small business manufacturing for QuickBooks, so if you don’t already have one, quickly implement one now.
Your MPS is going to incorporate key areas of production such as:
— Your demand planning;
— Work schedules;
— Your available raw material levels, onsite and in transit;
— Machine specifications;
— Storage capacity; and
— The estimated frequency for stoppages for maintenance.
By focusing on your scheduling production process, you’re going to be able to maximize the efficiency of your production flow. In turn, allowing you to fulfill orders as soon as possible, minimize delays, meaning less stress for you and a more satisfied customer.
The issue with not having an MPS implemented along with your QuickBooks manufacturing is those small inefficiencies in your business are difficult to notice and only become detectable when they’ve become a significant problem.
You don’t need tons of money, conveyor belts, and heartless machinery working away 24/7 to automate your production.
Automation simply means finding tools and wholesale software which can help boost your QuickBooks for manufacturing. This could be in the form of QuickBooks addons for manufacturing such as marketing automation software or an MRP system.
The purpose of using these QuickBooks add ons for manufacturing is to make running your business that little bit easier and free up time so you can get back to your love of manufacturing your items.
And that’s about it!
Following the few steps listed above is going to be difficult to get your business all in order.
That’s why we’ve put together the ultimate guide on what is manufacturing so you can go above and beyond with optimizing your business.
But, let’s tie this back to our initial Wizard of Oz reference since this article has become pretty technical.
Optimizing your QuickBooks for manufacturing doesn’t have to be a headache, Dorothy didn’t have to march across Oz to throw water in the Wicked Witches face, all she had to do was click her ruby slippers.
The same goes for any manufacturers who is looking to improve their business management. You don’t have to go through every step and manually identify the issues in your company when you can implement a Smart Manufacturing Software which will help you identify problems automatically.
Then, simply watch all the limitations that come with using QuickBooks for manufacturing melt away.
PRO TIP: When looking for software to use in your business, be sure to be certain that it has QuickBooks integration so you can bridge any missing features with the new software.
So, without further ado, let us introduce you to your ruby slippers, which is going to help launch your business into the stratosphere and help you find success.
Smart Manufacturing Software Helps Boost QuickBooks for Manufacturing Business
Smart Manufacturing Software by Katana is a QuickBooks inventory management integration made by manufacturers, for manufacturers.
However, it’s not just a simple system used for tracking inventory; it also helps you:
— Centralize your business management;
— Get more control over your inventory;
— Plan production; and
— Improve your order fulfillment rate.
But, how does Katana do all this?
1. QuickBooks Integration
By integrating your QuickBooks for manufacturing account with Katana, you can receive sales orders and generate invoices from Katana, and the changes on both accounts will be reflected immediately.
Katana will also provide a clickable link so that you can view any of your generated invoices on your QuickBooks dashboard.
2. Real-time Inventory Levels
Katana autonomously tracks your raw materials and finished products stock levels, so you have up to date readings on your current inventory. On top of this, our unique auto-booking system takes your available material and assigns it to manufacturing orders automatically, so you know if you’re able to complete your upcoming projects.
Eliminate production stopping stockouts by setting a reorder point, so Katana will notify you as soon as your inventory levels begin to run too low.
3. Enhance Your Production Scheduling
Katana uses a red, amber, green (RAG) system so you can quickly get a clear understanding of the status of your productions.
Our task list gives you and your teammates an overview of what operations are pending, in progress and finished.
Katana automatically schedules manufacturing orders into production in the order they're created.
However, our nifty drag-and-drop system allows you to reschedule your production with ease, a handy feature if you need to finish a project as soon as possible, for example, to retain a loyal customer.
4. Save Your BOMs in One Place
Save your BOMs into Katana to speed up your production process and easily access them later. The great thing is once you've finished saving your BOMs, Katana will know what material is needed and the production process a product needs to follow.
The great thing is if you make multiple variants of a product, Katana can help you easily generate each possible variation when setting up your BOMs.
5. Centralize Your Entire Business
The biggest solution this QuickBooks add-on for manufacturing provides is the ability to be able to manage your entire business from one easy-to-understand, visual dashboard. Just using QuickBooks for manufacturing means you’re going to need to do your inventory and production management elsewhere, usually by using inefficient Excel spreadsheets.
Reorienting your business with Smart Inventory Software gets you out of the growth restricting spreadsheets and allows you to scale your business.
QuickBooks can be used for your manufacturing, but you’re going to need to do a lot of your inventory management and scheduling outside of QuickBooks. And even if you do try to rough it out with QuickBooks, you’re still stuck with the problem of manually updating all changes immediately otherwise you’ll run the risk of going into negative inventory.
Negative inventory will lead to your expenses being incorrectly calculated, causing heartburn when trying to file your taxes later down the line.
QuickBooks is amazing for tracking your company's finances and okay, but challenging, to use for inventory management (especially as a manufacturer). But, is QuickBooks good for manufacturing?
It could be improved.
And that’s the main purpose of using Smart Manufacturing Software, to fill in the featureless gap on QuickBooks when it comes to running a manufacturing business.
Making your QuickBooks for manufacturing as easy as tapping your heels together three times.
Don’t believe us? Give it a try for yourself! We offer a 14-day free trial, no credit card details, or other commitments. Just sign up, integrate your QuickBooks, and quickly discover how Smart Manufacturing Software can overhaul your manufacturing business.
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Until next time, happy manufacturing.