Have you heard yourself sigh in overwhelm and say, “Inventory Management Has Me So Confused?!”

You understand the concept of entering raw materials (gems, beads, chain, clasps, sheet metal) into inventory when you purchase them and entering the finished item (ie: gemstone necklace or thingamabob ring) so that you can enter it on an invoice when you sell it. The retail cost of the finished piece goes into the Sales account from your Chart of Accounts. If you are confused here, then you should check out the online training course for Xero, which shows you exactly how to take the burden of financial luggage off your shoulders and gain control of your numbers.

But you may be asking, how does Xero (or any accounting program) know which raw materials and how much of the value of cost of materials was used to make the necklace?  In other words, do you have to go into your materials inventory and remove each gem, clasp, chain from the inventory once you sell it?

If this has you confused, you hit the nail on the head. Your perspective of inventory is exactly mine (and many others) and was my biggest hurdle to understand with jewelry accounting. I want to see the actual production costs in my Accounting Software by goodness! The thing is, most “inventory” programs do not have this, such as Lettuce, the QB Inventory go-to. If you are buying and selling the exact same thing, like ordering a finished necklace and selling that finished necklace, then those items can easily connect on both the Purchase and Sales side by completing that information for each individual item and it’s no big deal. But that’s not the case for jewelers.

Manufacturing/handcrafted jewelers always have at least 2 items that go into the finished product: metal and labor at its most simple. There is no way in Xero, QuickBooks Online, or many of the desktop QBs to track this. In QB Desktop for Manufacturers, you can, but that system is so cumbersome that I don’t want to use it.

So, the solutions are:

1. Buy a software designed to do this manufacturing feature (it’s called Kitting / Assemblies / Bill of Materials and more). The problem here is that they start at $4000 and most small businesses can’t afford that, and it’s also often too robust. There are a few, but limited, with the most reputable being Fishbowl. This does integrate with Xero and QB.
2. Select a cloud-based add-on software that integrates with Xero, like our app, BenchWorks , which also syncs with Shopify and Etsy and is only $1 a day when paid annually. Other add on software includes Businessmind for Jewelers, Dear Inventory, or Unleashed, but these are upwards of $900 per year last I checked. Depending on your needs this could be a worthwhile investment that will save at least that much in headaches. The greatest benefit to an online app like these, is that they are pre-formulated and coded for you, so there is no risk of errors, like in a spreadsheet if you don’t check the formulas when inserting lines for example. So, if you prefer a more hand’s off approach, don’t use our spreadsheet, and let the software take much of the manual work off of you.
3. To clear confusion from mis-marketing, as of the date of this blog, tradegecko, and  StitchLabs, do not manage assemblies or bill of materials for production.
4. Create an excel spreadsheet that does all of this tracking the same way the fancy software does, except a little more manual work. You manually enter the data (or copy and paste) and then formulas calculate the rest. If you create it yourself, it’s free. You have to make the adjustments in your accounting program to have the accurate value. Just like all programs, it has to be maintained and it doesn’t integrate with anything, so an inventory adjustment entry will have to be made in your accounting program. If an excel spreadsheet is more your speed, save yourself the time, I’ve created one for you. Click here!

Inventory is tracked in 2 ways:

1. Perpetual Inventory
2. Periodic Inventory

Essentially, “kitting” boils down to either maintaining what is called a Perpetual Inventory, where you track every itty bitty little scrap of metal as it moves. Or, the way that makes the most sense:  A Periodic Inventory, which is where you go through the year buying, making, selling, then at month-end, quarter-end or year-end, make an adjustment entry in your accounting program to move the costs between Inventory Asset and Cost of Goods Sold. It took me years to accept this; I’m not kidding, I spent Years researching the best way to do this and was fixated on tracking how I converted my raw materials into finished goods.

Want buttons and a clean interface and a lot of the work done for you? Get BenchWorks and enable Materials Inventory Tracking, integrate with Xero, Track Consignment, and More!

BenchWorks, our online inventory app goes with you everywhere, easily! It’s cloud based with a beautiful and simple interface, and you can use it from any device, any time.