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Financial
Mar 1, 2014

Inventory: Cutting Costs With Better Controls

Sponsored Content provided by Robert Rickert - Founder/President, Robert J. Rickert, CPA, PC

For the last two months, I’ve been telling you how Crystal Carpet & Flooring Company of Wilmington has made smart and tough business decisions to recover from the housing bust and recession. It’s the kind of work that can make a huge difference in a company’s long-term health and success. We worked with Crystal Carpet to bring in an outsider’s perspective and provide a complete, objective overview of the business, its challenges and the systems and education needed to make it run right. The last big step of this ongoing project was getting a handle on inventory. - Rob Rickert
 
Chad Garner admits that he entered the flooring business blindly. He went from cleaning carpets to selling floor coverings of all types to residential and commercial customers.

Over time, Crystal Carpet & Flooring Company added custom design work, property management support, and a division for bathroom remodeling projects.

Crystal Carpet has been in business for 20 years. But it’s been in just the last two years that Garner has gotten a handle on his company’s inventory and used it to capitalize on opportunities to increase profit.

“Turning inventory faster is key,” Garner said. “You get better shipping rates when you buy in bulk. When you get all the same dye lots in carpet, you get less of a waste factor. You can use more scraps.”

It took breaking bad habits to turn things around for Garner.

The business had weathered financial difficulties several times, Garner said, as the result of bad hiring decisions and a loose oversight structure at multiple locations.

Garner said that when the housing market began to boom around 2003, business was very good. So good, he said, that he didn’t have to worry about whether he was following good fundamentals.

Then came the housing bust. And of course the recession.

“We found ourselves hanging on and having some pretty tough years,” he said.

In 2011, Garner began working with Robert J. Rickert, a CPA in Wilmington. Rickert describes himself as not-your-typical CPA. His firm specializes in going beyond compliance issues to identify business strategies that can help businesses grow. Rob and his staff offer CFO and controller services, crisis management, interim financial management, and assistance with buying and selling businesses.

Inventory control was the third project that the staff at Rickert CPA worked on with Garner to tighten up his procedures.

“When we first started there was no inventory count done and no way to track what Chad had in inventory at any given time without physically looking through the warehouse,” Garner said. “Not only that, but Chad had no way of identifying which products were the best sellers and which were earning him the most money.”

Rickert and his team worked with Crystal Carpet to tag every piece of inventory in the company’s warehouse and add it to the accounting system. The system gave Garner the ability to regularly reconcile inventory counts electronically with the actual inventory in the warehouse, and eliminate errors.

With better data, Crystal Carpet was able to break down information on profit margins by product line, manufacturer and style to identify which products the store should be stocking.

“We put in a pretty much point-of-sale system for inventory,” Garner said. “We’ve had to track expenses accurately and be very defined, very disciplined in our processes and procedures as far as cash flow.”

Finally, the staff at Rickert CPA worked with Crystal Carpet on strategic buying. Using the data it collected, Crystal Carpet was able to determine which product types sold the quickest and for the highest profit for the company.

Garner could then buy his best sellers in bulk to take advantage of discounts, which helped increase his profit margins on those products. Before, Garner’s purchasing decisions were driven more by experience, instinct and what he could get for a good price.

“The end result is his inventory is down, which makes cash management easier, and his margins are up,” Rickert said.

With better insight into inventory, as well as the systems Rickert and his team put in place to manage cash flow and track costs, Crystal Carpet is no longer struggling with big dips in its cash flow.

“In the beginning, we half heartedly tried to do some different things because some things are uncomfortable to commit to,” Garner said. “But that’s beside the point. You have to do it or you’ll find yourself in trouble.”

Robert J. Rickert CPA, PC focuses on giving its clients timely, accurate and relevant financial information to help them make informed decisions about their businesses. The firm provides customized solutions to meet the specific needs of its clients. Services offered by the firm include CFO and controller services, crisis management, interim financial management, acquisitions and business buying, divestitures and business selling, litigation support, business tax services, and tax dispute assistance for individuals. For more information, visit rickertcpa.com, call 910-319-9127 or email [email protected].

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