Do You Have to Account for Inventory in a Small Home-Based Craft Business?
Inventory management is a key duty for businesses that sell tangible products. The company must keep track of inventory for the purpose of financial statements and also to ensure that it has enough product on hand at any given time to stay in operation. One specific type of business that commonly requires inventory tracking is a small home-based craft business.
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Home-Based Craft Business
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Due to the small size and needs of a craft business, it is common for a craft business owner to operate from home. He can simply set up shop and create masterpieces from a dedicated room in the home, such as a garage or bedroom. It is also logical to store common required craft materials, supplies and finished products in the home, making it simpler to account for those inventory items.
Manufacturing and Sales Process
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As is the case with any manufacturing company, the home-based craft business owner must set up an assembly line for creating crafts for sale. The ideal process is to bring materials in from the inventory room, place them at specific stations on the assembly line and then put the crafts together according to a set process. Once manufactured, the home business owner can simply display the items for sale online and fulfill orders from home as well.
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Accounting for Inventory
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Common inventory items for crafts include equipment, supplies and raw materials. Equipment items may include glue guns, cutting tools and spray guns. Supplies and raw materials include wood, metals, glass, yarn, paint, paper, ribbons, rhinestones and other adornments for craft products. The craft business owner must classify each of these items into inventory for quick access and to monitor stock levels. You have to account for inventory with any product manufacturing or selling business to determine your cost of goods sold (COGS). The COGS is crucial in determining your total profit on crafts sold in a set period of time.
Keeping Track of Inventory
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Since this is a small home-based business, you can start by keeping track of inventory in a printed ledger book or using a basic spreadsheet program. Take inventory of all items you've purchased initially and record the corresponding costs for each item. Next, record the amounts for all items used during each manufacturing session on a separate sheet of paper or computer worksheet. At the end of each week or month deduct the used inventory totals from the previous inventory totals to determine the new inventory totals.
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