Is QuickBooks Inventory Management the Best for Small Manufacturers?
Running a small business is difficult, even for dropshippers.
However, as a small manufacturer like yourself, you must contend with the difficulties of running a business, scheduling production, inventory management (including raw material management) and, finally, administration.
Most of these points won’t be that much of an issue since making things is in your blood.
But, the admin side of things can be intimidating. Especially when it comes to things like taxes. It gets even scarier when you realize filing your taxes incorrectly could have serious consequences.
This is why many product-making businesses use QuickBooks inventory management so they can keep track of their finances at the same time.
It’s not an uncommon choice among small scale manufacturers to use the QuickBooks inventory management online feature. Obviously, QuickBooks isn’t a cloud manufacturing software first, but the idea behind adopting QuickBooks is to hit two birds with one stone:
1. Manage Inventory
2. Manage Accounting
And let’s be honest, it’s a good idea since the two go hand in hand and you don’t have to continue searching for an ERP system which is usually built in mind for bigger manufacturing companies.
Unfortunately, however, it’s not that straight forward. QuickBooks is a phenomenal piece of software for managing your finances (and it has years of awards and accolades to back this up).
But, QuickBooks inventory management? Eh, not so renowned.
In this article, we’re going to investigate QuickBooks inventory management, why product-making businesses use it, its limitations, and what software you can use to overcome these challenges.
If you’re familiar with QuickBooks inventory management, then we’d recommend not running away just yet. Instead, skip to limitations and read on from there.
PRO TIP: Managing your inventory is more complicated than you might imagine. This is why we’ve put together a must-read inventory management guide to help you in your quest to find more control in your workshop.
What Is QuickBooks?
QuickBooks is an accounting software package geared primarily toward small and medium-sized businesses. It offers accounting applications either through a desktop or cloud-based version that can help businesses accept business payments, manage and pay bills, and organize the company payroll.
This is just a quick and basic explanation of QuickBooks. As it’s been primarily developed for handling your finances. If you want to know more about that aspect of how it works, check out their video below:
But, what about when it comes to QuickBooks inventory management?
Why Manufacturers Use QuickBooks Inventory Management
First things first, by using QuickBooks inventory management, you can track your inventory, and have it reflected in your bookkeeping immediately, making this very appealing to any product-making business who sell direct to consumer.
So, how does QuickBooks inventory management work? It breaks down your inventory into four categories:
This is comprised of the items that you sell (and buy if needs be), allowing you to track those quantities. However, to be able to track them, you need to enable Inventory Tracking under your settings.
To enable Inventory Tracking in QuickBooks, go to the Gear/Cog icon at the top right corner of the screen.
Select “Account and Settings” and go to “Sales”.
In this window, you can find the option to enable tracking under “Products and Services”.
A quick disclaimer: Tracking and inventory management with QuickBooks requires you to be on the correct payment plan, as these features are not offered on most versions of the software.
Simply, these are the nuts and bolts of your inventory. If you’re handling raw material, then this is where it’s stored. We’ll explain the complications of recording raw materials a bit later, but it mainly concerns recording the conversation of raw materials into finished goods.
These are the services you provide. Perhaps you sell a product, such as a piece of specialized equipment that needs to be installed on a prebuilt machine, and you might offer an installation service too. This is where you’d track these costs.
If you practice inventory kitting, making gift baskets, or selling products and services together, for example, it’s all tracked under your bundled inventory.
How Exactly Does QuickBooks Inventory Management Work?
QuickBooks records your inventory item by the value it was purchased at (or how much it costs for you to make) increasing the value of the Inventory Asset account on your Balance Sheet report and increasing inventory (or Quantity on Hand) of said product.
Once the finished product has been updated as sold, the built-in inventory management software for QuickBooks decreases the value of Inventory Asset and the Quantity on Hand units for that item.
When you record a sale, the inventory management in QuickBooks increases the Cost of Goods Sold and records the Income from your product.
To figure out your gross profit, you'll need to check the difference between your COGS and your Income.
When using QuickBooks inventory management, it performs inventory evaluation using the first-in, first-out (FIFO) system to track any fluctuations in product costs and the COGS.
This might sound all confusing, but basically, all you need to know is that when doing QuickBooks inventory management, it tracks your finished goods and gives you an evaluation of their costs, profits, and losses.
However, QuickBooks can be used to track other manufacturing costs, such as the cost of labor and manufacturing overheads. But, to edit these you're going to need to access the settings page and look into your “Chart of Accounts”.
You might be rubbing your hands together if you've been contemplating getting started with QuickBooks. Hey, we don't blame you, it's accounting software, and it's top-notch.
But, there are downsides to using QuickBooks inventory management, which we'll explore before you make any decisions.
The Limitations of QuickBooks Inventory Management
It would be awesome to conveniently manage your business from one place, and it’s the very reason you’re here looking into how to record finances and do your QuickBooks inventory management.
However, software is usually designed to be used for one thing and sometimes comes with extra features for those who might need a particular aspect of business management.
And this happens to be the case in this instance.
As said earlier, it’s super awesome for accounting, but the QuickBooks inventory management system, it lacks a lot of features which are essential for small manufacturers.
1. QuickBooks Inventory Management Isn’t Designed for Manufacturers
This is the simplest way of explaining the biggest problem.
Yes, QuickBooks inventory management is possible, but it isn’t designed to support businesses that run job shop manufacturing. If you solely depend on QuickBooks, you’re going to need to organize your routings for productions either in spreadsheets or with another tool.
2. No Production Scheduling
Once again, there is no feature for you to establish and save a master production schedule (MPS) within QuickBooks. Meaning you’re going to have to figure out your production planning and have it saved somewhere else. Which can be a pain for you and your teammates as this information will now be stored separately.
3. No Serial, Lot Numbers and Location Tracking
Okay, this isn’t 100% true, there is a module for location tracking on the more expensive QuickBooks packages. But, otherwise, the core QuickBooks inventory management feature doesn’t support any of the above which you’ll likely need as a product-making business.
4. No Bill of Materials
QuickBooks inventory management online doesn’t feature a way of writing and saving your bill of materials (BOMs). There are workarounds, such as creating items under products and services, but no built-in BOM creation module.
5. QuickBooks Cannot Convert Raw Material into Finished Goods
Once again, you can use the system to track sub-assemblies or group items together, which you’ll purchase together to make a final product. However, you’ll need to sell on the grouped item as the final product for this to work (which will be reflected on the customer’s receipt).
Think of it like this:
In QuickBooks - component A and component B represent the finished product
Basically, QuickBooks is fine for tracking your finances and inventory if it only consists of finished goods. However, if you’re a maker, it doesn’t support the most crucial element of your business, which is the manufacturing process your business follows.
You can probably see how this would be an issue for you...
Don’t overreact, as we can’t overstate this any more than we already have:
QuickBooks is fantastic!
But the key to success is to move away from doing your inventory management with QuickBooks, and instead marry your account to a cloud manufacturing software to fully optimize your business.
Integrate Your QuickBooks Account with Smart Workshop Software
Smart workshop software like what is offered by Katana allows you to seamlessly integrate your QuickBooks account, helping you to bridge the missing feature gap of the QuickBooks inventory management built-in system.
Firstly, once you’ve integrated your accounts, you can begin pushing your sales orders from Katana to QuickBooks (allowing you to accurately track your income) and generate invoices from the Katana dashboard. Useful for tracking expenses in QuickBooks and for sending off invoices to a supplier.
The video below will explain these features in more detail:
But, more importantly, integrating your QuickBooks with Katana allows you to have access to:
1. Real-time Inventory Updates
Our unique auto-booking system allows you to get a better understanding of your stock-levels. When a manufacturing order is created, Katana automatically takes any available material and allocates it to a project. The same goes for if you’re a make-to-stock business, but instead, a finished product will be committed to a sales order.
2. Production Scheduling
Katana’s production scheduling software uses a RAG system to give you an easy-to-understand, visual dashboard, so you can easily monitor the status of your production. A built-in task list allows you and your teammates to see what needs to be done and how long is left until an operation is completed. Finally, our nifty drag-and-drop feature allows you to reprioritize your work order for if a specific project needs to be completed first. Best of all, Katana will automatically redistribute resources to the new workflow.
3. Save Your BOMs
Speed up your production by saving your BOMs onto Katana, which will allow the software to automatically adjust inventory levels when future orders come in and let your teammates know what material is needed and what manufacturing processes need to be followed. If you sell multiple variants of a product, Katana can easily generate each possible variation when setting up your BOMs.
Puppy Cake was able to save nearly $20,000 in annual payroll by integrating smart workshop software into their business.
How did Puppy Cake manage to save such a huge amount? It was because they were able to:
— Save 20 hours a week by not having to continuously count stock;
— Move away from tediously having to update spreadsheets;
— Fix mistakes made from errors made in spreadsheets; and
— Streamline their supply chain.
The bottom line is that we highly recommend you to consider QuickBooks for your business. However, make sure you use it for its strong point — tracking your company's finances.
QuickBooks inventory management has a clear feature gap for manufacturers. Bridge that gap with inventory management software which can smoothly integrate with your QuickBooks account.
You might be tempted, and you wouldn’t be the only one, to just do your inventory management with inefficient Excel spreadsheets. But, using spreadsheets is cumbersome and prone to business damaging mistakes.
All in all, resist the urge to put all your eggs in one basket.
QuickBooks inventory management is okay, but not for makers who’re stocking more fiddly bits than finished goods. Keep QuickBooks for tracking your finances! But, centralize the rest of your manufacturing business by integrating smart workshop software and optimize your businesses performance.
Why not try it out for yourself? We offer a 14-day free trial, so you can see just how much Katana can help your business.
We hope you found this article useful. If you have any questions, please don’t hesitate to get in touch, and until next time, happy manufacturing.