Direct Sales Inventory Management in 3 Easy Steps

No matter how long you’ve been in direct sales, managing your inventory can be one of the most challenging and time-consuming parts of your business.

But it does not have to be!

There is a lot of confusion about inventory management for direct sales.

Do you have to track your inventory?

What do you do if you use products for personal use?

How do you handle products you give away as incentives?

In this article, I will answer all those questions and show you how to completely manage your inventory in three easy steps!

For starters, do you need to track your inventory?

According to the IRS, you must “use a method of accounting for inventory that clearly reflects income.” How will you accurately account for your income and expenses without tracking inventory?

So yes, if you hold inventory for resale, tracking it is a good idea.

Remember that cost of goods sold (COGS) lowers how much you are required to pay in taxes.

What if I use products for personal use?

If you use products from your inventory for personal use (and really, who doesn’t sometimes?), you’ll need to remove them from your inventory in your accounting software.

If you are receiving the products for free, the retail value shows up on your 1099 provided by your company as income at the retail value.

If you paid for the product at full price or using your discount, you still want to remove the product from inventory, but you will not be able to add its value to cost of goods sold (COGS) as a tax deduction.

What if I give products away as incentives?

I get this question all the time. It is a great question! If you give a product away as an incentive or use it for demo purposes, it is now an advertising expense, not a cost of goods sold.

If it was a free product from your company (1099 as above), it still shows up as income.

Now instead of deducting your cost, which is the cost your company says you earned for that product when you received it, as COGS when you sell the product, you now deduct that cost as an advertising expense.

Similar to using products for personal use above, if you paid for the product at full price or using your discount, you still want to remove the product from inventory, but now you will use the actual amount you spent on the products, including tax and shipping as an advertising expense.

Now that we have the answers to those questions let’s find out how to use Direct Sidekick’s inventory management software to simplify this.

If you have yet to track your inventory or are new to Direct Sidekick, you’ll want to do these two things first to get set up.

1. Import your beginning (existing) inventory. You can import a CSV file with your item number (SKU), item name, quantity, and average cost. The average cost is what you actually spent on your items. This step will require a physical count if you need to know how many of each item you have on hand.
2. Import your default product list (optional). When you import your beginning inventory in Direct Sidekick, it also adds those items to your product list. You can import your product list with those two numbers to update the cost and retail numbers, and Direct Sidekick will update them. This also comes in handy if/when your company changes its prices in the future.

Direct Sales Inventory Management in 3 Easy Steps

Step 1: Add units of your products into inventory using purchase orders (PO’s).

Use purchase orders to add products to your “personal home inventory” for resale.

Do not enter your customer orders into Direct Sidekick.

Your income from those orders is automatically tracked daily when your transactions are imported.

Most customers match the PO number they receive from their company for easy lookup later.

1. Enter the shipping & handling amount you were charged by your company and any tax applied to it.
2. Search for and add the products to your PO.
3. Enter the number of units and your cost per unit.
4. Select whether you were taxed on the product or not.

If we’re not already working with your company on automatically importing your purchases for you, we’d love to chat with someone at your company about that. Our goal is to make your job easier, and I know your company would like to as well!

Please email your company’s Field Support or Sales department and CC [email protected], letting them know how Direct Sidekick is helping your business and how connecting with your company’s back office would help you.

Step 2: Remove SOLD units of your products from inventory using invoices.

1. Navigate to the Invoices page under the Inventory menu tab.
2. Click the “+ New Invoice” button.
3. Now complete this form with whichever products you would like to invoice your customer for and click the save button. This will remove the items from inventory.

Pay close attention to the Add to Income checkbox on your invoices. If it’s checked, the grand total of the invoice is added to your income.

If you also have your deposit account connected. The deposit will automatically be imported and categorized as income.

This would lead to counting this amount twice, which we do not want to happen. You’ll want to have one or the other happen, not both.

When removing stock from inventory, the items’ costs are automatically added to cost of goods sold (COGS). Do not add a separate transaction for the cost of goods sold.

Step 3: Remove inventory used in demos, giveaways, for advertising reasons, or personal use using adjustments.

1. Navigate to the adjustments page under the Inventory menu tab.
2. Click the “New adjustment” button.
3. Choose the type of adjustment. Did you demo a product, give something away for advertising reasons, or use something for personal reasons?
4. Enter the products you want to remove and save the adjustment.

After following this process, your Cost of Goods Sold and Profit & Loss reports are automatically updated. Those are the two reports you’ll need to finish your taxes each year AND to review how much you’re earning in your business.