What’s all this talk of selling cold goods? Oh, wait…
That’s cost of goods sold. And it is key to your business’ finances if you are making something and selling it. If you don’t know how much your product costs to make, it will be hard for you to understand what makes your business profitable or even make it grow!
Your inventory is key to being able to calculate the cost of goods sold (COGS). It is built around your beginning inventory, adds in purchases made during the period and then subtracts the ending inventory form that total. Or, when expressed an equation:
- BI + P – EI = COGS
Simple enough? Well, not so fast– even though the formula is basic it is critical to remember than COGS only applies to those costs directly related to producing goods intended for sale.
COGS tells you your gross profit and is a metric to measure the cost of doing business. It is also a critical measure of profitability and your ability to stay in business. In other words, the life blood of your company’s present and future.
For more on how to determine, manage and control costs, call or write to us. TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.
*photos courtesy of Unsplash