Inventory: Is it just "paperwork" or is it your profit keeper?

Many experienced manufacturing company managers respond to the question "Could you please send me an inventory report?" with confusion or mild irritation. "We have everything in process, metals come in, parts go out, invoices are paid - why should I waste time counting every screw?"

However, the reality is harsh: without inventory, your accounting profit is just a guess, not a fact.

1. Legal requirement or entrepreneur's safety cushion?

Let's start with the formal side. The Law on Annual Reports and Consolidated Annual Reports stipulates that an inventory is mandatory at least once a year. If an accountant requires it, he is not "inventing new rules", but is fulfilling his duty and protecting the company from trouble with the SRS.

But let's put the law aside. The more important issue is governance.

2. How does inventory directly affect your profits?

This is where managers usually get interested. In manufacturing, profit is not calculated simply by the formula "Revenue minus Expenses on the bank statement."

Inventory changes play a critical role in calculating profit. Here's a simple example:

1. If at the end of the year there are goods worth 100,000 EUR in the warehouse, but only 50,000 EUR are shown in the accounting (because no one has counted the actual situation), your profit will be artificially reduced.

2. And vice versa - if the warehouse is empty, but "on paper" there are thousands of euros worth of raw materials, you are living in the illusion of profit, which in reality does not exist.

Without accurate data, you cannot determine the correct cost price. If you don't know the cost price, you cannot determine the correct selling price.

3. "Invisible" losses in production

The production process is like a living organism. There are scraps, scraps, material losses, or even simple theft. Without inventory, these losses "disappear" into the common pot.

Where did the 10 tons of metal go? "We already used it up."

Why is the profit so small? "Everything remained in the materials."

An inventory is the moment when a manager sees the truth: how much money is "lying" on dusty shelves and how much has simply "vanished into thin air" due to inefficient processes.

4. Inventory as a ritual of tidying up

It's not just about numbers. It's about processes. Are there items in your warehouse that have been sitting there for 5 years and will never be sold? (That's frozen money). Do employees know that their actions with materials are being monitored?

Conclusion for the manager

If you've been running a business for decades, you probably feel your business "with your skin." But feelings are not the basis for making investment or credit decisions.

An inventory is not a punishment. It is a "health check" for your business. It is the only way to make sure that the profits you see on the balance sheet really exist and that your warehouse has not become an expensive "landfill."

The next time your accountant mentions inventory, see it not as a nuisance, but as an opportunity to finally find out – how much money do I actually have today?