Quickbooks for the Small Manufacturer

Quickbooks is a great piece of accounting software for the small manufacturer who has limited accounting knowledge. Setting up the software to work with your business is the only technical knowledge that requires a little bit of accounting and some degree of difficulty understanding how the back-end of quickbooks works. If you are not generally computer savvy, I HIGHLY recommend hiring a consultant BEFORE YOU START SELLING to manage your books and inventory so that you do not pay forward a much more expensive and time consuming problem with your accountant at the end of the first year.

This article presumes that you are a manufacturer of products, some with different styles (i.e. for us it was Plush Pads of different pattern designs. We later further complicated matters by changing our packaging such that we had 2 types of packaging options (one for mass retailers and one for boutique retailers) as well as inventory in two warehouses (one overseas and one in the US). Further, we sourced our materials that make up our product and outsourced manufacturing, so we generally over order materials to get price breaks and need to reorder from time to time when our materials run low. There are a number of materials that are needed to make up one unit of our product so tracking all of this was necessary both to understand what assets we currently had to account for their value, as well as to understand what we had on hand to know when we were running low. Quickbooks has some great features that manage all of these needs, but they are a little difficult to understand and need to be somewhat tailored in a custom way for this, as they weren't originally intended (or listed in the menu systems / help manuals) for these purposes.

Inventory Parts - Let's start off with simple inventories - each product is an item, but since our product is made of different materials, each of those are an item as well, so it's important to start off at the most basic level of material (item) that you purchase. For us it was the cotton, elastic, memory foam, etc. each being a separate item as the base level of items that make up our ultimate Plush Pad product. These base items that make up a finished product are called in quickbooks "inventory parts". So you would go into the items section and create a new item for each of them as their own separate "inventory part". You should know how much it costs (either per unit or per yard, per meter, etc. - you can even create custom "units" to describe your unit of ordering) and there is a provision here to list that. For example, our cotton material is purchased per yard, so we place the cost and list the "yard" selection as the unit of measure. We also have "labor" as a cost of our goods sold, so we "tricked" quickbooks into including this as an inventory part and listed the labor cost we pay to our cut and sew factory per unit as it's own item.

Inventory Assembly - your finished product (for us the Plush Pad) incorporates a number of different materials + the labor "inventory part" all together (be sure to include packaging, UPC labels, etc. and assembly costs as additional inventory parts that make up this inventory assembly if these are a part of your finished salable good. Basically every cost to make up what a customer ultimately buys from you.

Managing different styles and /or different warehouses - For us, we have 13 different styles of the Plush Pad - all of them made with the same materials with the exception of the cotton that comes in different patterns that make up different styles of our product available to our customers. Further we have different packaging - for us we had packaging in tubes and in boxes. Lastly, we had both located in 2 different locations (one overseas and one in the US). Ultimately, to track each separately, we had to create slightly different inventory assemblies (i.e. product item names) for each scenario. For us, we coded our sku names to provide consistency for this - for example, Plush Pads in Tubes in the US that were in the Blueberry style were given the sku: PPTUS-Blueberry-10. PP =Plush Pad, T= tube, US=USA, Blueberry=style, and 10 = when the style was first made available. A separate inventory assembly for our Poppy style would be PPTUS-Poppy-10, and the assembly would contain all of the same inventory parts except the Poppy Cotton which would replace the Blueberry cotton. Quickbooks easily allows you to create a duplicate item so that you can copy all of another inventory item to a new one without entering everything in again. It makes it much easier to create new styles, warehouses, etc. by doing this. PPTOS-Poppy-10 would be Plush Pads in Tubes in our Overseas warehouse of Poppy style.

Build assemblies - you would create purchase orders to list the materials that you were ordering and then receive inventory to then have the inventory show up when you see your inventory part items in the items screen. Once you have sufficient materials to make your finished product, go into the "build assembly" screen in quickbooks and select the assembly item - in our example, PPTUS-Poppy-10 to build the number of items ordered in your PO. You do this for every product sku that you have, and as you create new invoices you select those item numbers and each time it takes the number of units from that invoice out of your product item inventory in the items page. Quickbooks also allows you to list an alarm when your inventories drop beneath a certain number.

Moving inventory from one warehouse to another - the cool thing by doing it this way is that you can "move" inventory that may be in one location to another location by simply changing your inventory item assembly to build from another inventory assembly. Using our example, if you wanted to move 10,000 units from our overseas warehouse to our US warehouse, you would edit the PPTUS-Poppy10 item (US inventory) to be made up of the PPTOS-Poppy-10 (overseas inventory). Be SURE to look at the average cost of the items you are taking from (here the overseas inventory) and hard code the item cost in the respective window in that item before building it, as you want to make sure that this average cost (which can change from order to order) is accurate when building it into your other warehouse item. Then simply build 10,000 the PPTUS-Poppy-10 item from the PPTOS-Poppy-10 item. You will see it takes the number away from the one inventory and adds it to the other inventory, and will average cost the new cost per unit with the cost per unit of the new inventory you just moved into there.

You can customize this to suit your needs, whether it be one retail store to another, etc. It all works based on the same underlying way of maintaining items.

Good Luck!!