If you’ve been following along, you know that we’re doing a Now We Know series of posts addressing curious information about the direct sales industry.  If you’ve REALLY been paying attention, you also know we paused that series in December so we could share a Few of Our Favorite Things with you for the holidays.  Well, we’re picking Now We Know back up.

Raise your hand if you have you ever heard this rumor: consultants at many direct sales companies are required to purchase inventory to start selling?   I have!!  This is one of the first questions I hear from clients or those interested in learning more about direct sales.  Yet the opposite is closer to the truth – most companies do NOT require a large investment in inventory when joining their company.  What IS true is that some consultants load up on inventory to hit sales levels to earn incentives and then do not put forth the effort to sell the product.  In part to combat this, member companies of the Direct Selling Association (DSA) adhere to a rigorous set of standards as part of its Code of Ethics, including requirements that member companies buy back unused inventory at no less than 90% of the original purchase price.  Good to know, right?

At BF Bookkeeping we want to arm you with information to help you make smart business decisions.  Let’s chat inventory before you decide to invest (or not) in keeping your shelves stocked full.  What is inventory, you ask?  It’s the product we keep on hand in our business to sell to customers.  Sounds simple enough, right?  Not so much.  Inventory can get tricky fast; there are different types and different ways to value it.  If you keep too much on hand, it could tie up your resources that could be better spent elsewhere.  If you don’t carry enough, your customers may consider shopping someplace else.  Gah! With all that to consider, it’s no wonder us consultants often get it wrong or don’t fully understand how we need to account for it.  I mean, in business school Stacy and I took semester-long classes on this topic alone!  Sound like a snooze fest for you?  Luckily, this weird, geeky stuff excites us and we stayed awake for those classes.

Here are a few tidbits of information that will help you feel smarter about your inventory situation.  In direct sales there are two types of inventory.  First, there’s purchased inventory; you lay out some cash (or credit) for it.  Second, there’s inventory earned for free.  This category includes those goodies you earn from your company as incentives for doing your job well.  Or, if you ever act as your own host of a party, you will likely earn free goods that way.  Many companies are very generous, and this type of compensation is prevalent in direct sales, so we’ve nicknamed this category: “freebies”.  As you may suspect, each type of inventory requires a slightly different method of valuation at year end.

Per usual, at BF Bookkeeping we recommend keeping it simple (shocking, I know):  carry as little as humanly possible.  We know that’s not always an option, so consider your type of business and method of delivery to customers when deciding how much product you want to keep on-hand.  Or call us and we can recommend an inventory level AND show you how to track it.