How to Set Up Products in QuickBooks Online (QBO) Properly
QuickBooks Online allows you to set up individual products, making it easy to track sales and create invoices. If you want to benefit from this feature, however, you need to set up your products correctly. Product setup affects everything from inventory management to sales tracking, making accuracy essential.
Imagine what would happen if you misclassified a new product as a white wine instead of red. The error would cause you to overestimate the amount of white wine on hand, putting your winery at risk of a product shortage. Product errors can also cause discrepancies in your financial statements, causing investors, regulatory agencies, and other stakeholders to lose confidence in your business.
Don't let inaccurate sales reports or inventory errors get you down. Balanced Business Group is here to help you set up products in QuickBooks Online.
Why Proper Product Setup Is Essential
Product setup affects three key areas of your business: inventory management, cost tracking, and sales reporting. Inventory management systems make it easy to track products as they move to the point of sale. To use an inventory management system effectively, you must have accurate data.
For example, if you decide to do inventory management in QBO, you choose a name and category for each item. You also set a price and decide how to describe the product on your sales forms. QBO even allows you to assign a unique SKU to each item. A mistake during this process could result in inventory problems, such as inaccurate item counts.
Your product data also influences your ability to manage costs effectively. If you don't know what you have on hand, it's tough to determine how much you spent on inventory and identify potential savings.
Finally, proper product setup influences the accuracy of your financial statements and makes it easier to calculate profitability. Your balance sheet reflects the value of your assets and liabilities, so you need to know exactly how many items you have on hand. If you enter a product incorrectly, it's possible to overestimate or underestimate the value of your assets.
Inaccurate product data also makes it difficult to calculate production costs and determine which products sell the best. If you don't prioritize accuracy when you set up products in QuickBooks Online, you might make decisions based on an incorrect profit margin.
Your Step-by-Step Guide to Setting Up Products in QBO
QBO allows you to create inventory items, non-inventory items, and services. Inventory items are tangible goods that you sell to your customers. You need to track the quantity sold to ensure the accuracy of your inventory counts and financial statements.
Non-inventory items are products you sell without tracking quantities. A service is work that you perform in exchange for compensation. For example, if your winery offers event planning services, you can charge customers for your expertise. However, event planning isn't a tangible item, so you don't have to track it in your inventory.
Turn on Inventory Tracking
Click Settings.
Click on Account and settings.
Select the Sales tab.
Navigate to the Products and Services section.
Click Edit.
Enable "Show Product/Service column on sales forms."
Turn on "Track quantity and price rate."
Turn on "Track inventory quantity on hand."
Click Save.
Select Done.
Add Inventory Items
Go to Settings, Products & Services.
Click New.
Select Inventory.
Fill out the product name, the SKU, and other required information.
Enter the initial quantity on hand (e.g., 25).
Enter the date you started tracking the item in the "As of date" field.
Add a reorder point. Completing this step ensures you receive a reminder when it's time to order the product again.
Choose "Inventory asset account" from the dropdown menu. Select Inventory Asset.
Add Sales and Tax Information
Create a product description to display on sales forms.
Add the Sales price.
Click the Income account dropdown menu. Assign the new item to the correct account. If you need a new account, click "Add new."
Click "Edit sales tax." If the item is nontaxable, classify it accordingly. Be sure to assign the right product type to avoid taxation errors.
Add Cost Information
Enter the purchase cost of the item.
Click the Expense account dropdown.
Select Cost of Goods Sold.
Set Up Service Bundles and Non-Inventory Items
When you set up products in QuickBooks Online, you need to distinguish inventory items from non-inventory items. If you offer services, such as consulting or event planning, you also need to categorize those services appropriately. To create a service bundle, follow these steps:
Turn on inventory tracking. We explained how to enable this feature in the first step of our QBO product setup guide.
Set your list of items in Product/Service > New Item.
Click the gear icon.
Choose Products and Services.
Click New.
Click Bundle.
Create a name for your bundle.
Enter a SKU, if applicable.
Add an image.
Create a description for your sales forms.
Select "Display bundle components" if you want customers to see the individual items in your bundle. Otherwise, your customers will only see the bundle name.
Enter the services you want to include in the bundle (limit 50).
Click Save to exit. Otherwise, click "Save and new" to create another bundle.
To create a service or a non-inventory item, follow these steps:
Click Sales.
Choose Products and services.
Select New.
Select Service or Non-inventory.
Enter the product name.
Enter the SKU, if applicable.
Choose a category from the Category dropdown menu.
Select the checkbox next to "I sell this product/service to my customers" if you're entering a service. If you're entering a non-inventory item, leave this box unchecked.
Create a description for your sales forms.
Enter an amount in the Sales price/rate field.
Choose an account from the Income account dropdown menu.
Click Save and Close.
How to Manage Inventory Products in QBO
Managing reorder points effectively is essential to help your business avoid stockouts. You don't want to lose a big order because you can't fill it in a timely manner. Although QBO allows you to create reorder points, it's not the best tool for the task. We highly recommend you manage reorder points with a spreadsheet until your business needs something more robust. Cin7 uses more than 700 integrations to help streamline your operations, making it an excellent tool for managing reorder points, creating custom reports, and maintaining accurate financial records.
Emerging CPG brands often try to distinguish themselves with stylish merchandise. If you sell hats, hoodies, and other types of apparel, make sure you set them up as inventory items in QBO. You also need to create food and beverage products as inventory items. Taking these simple steps can help you avoid inventory management issues.
Cin7 is an excellent tool for updating your inventory data automatically. With Cin 7, you can forget about spending every evening counting products and making sure the quantities in QBO match the quantities on hand. If you don't have Cin7, we also recommend A2X.
How to Track Sales and Cost of Goods Sold (COGS)
Doing CPG product tracking in QBO is a great way to save time and reduce the risk of errors. Tracking allows you to understand more about your business, such as how much each product costs and how much profit you earn per category. To track sales in QBO, follow these steps:
Apply for QuickBooks Payments. Once you have access, continue to the next step.
Create an invoice.
Add a sales receipt when the customer pays you.
QBO uses the information on your invoice or sales receipt to adjust the quantity on hand accordingly. For example, if you have 30 cases of pinot grigio on hand, entering an invoice for 10 cases would reduce the quantity available to 20.
To determine your cost of goods sold, follow these steps:
Enter an invoice or a sales receipt when you sell an inventory item.
Run the Transaction Journal Report for the invoice or receipt you just entered. The report displays COGS for the items listed on your sales document.
Because the Transaction Journal Report pulls information from other areas of QBO, you must set up your products correctly and verify you haven't made any data-entry errors on your invoice or sales receipt. Tracking COGS is an essential component of QuickBooks product management, as it helps you assess your profitability and improve the financial health of your business.
4 Common Mistakes to Avoid During Product Setup
Wineries and CPG companies often make these mistakes when setting up products in QBO:
Choosing an inexpensive version of QBO that doesn't allow you to create inventory items.
Entering inventory items as services because the COGS and inventory accounts are confusing or intimidating.
Failing to enter the unit COGS for a product.
Using the default options for COGS or inventory instead of choosing the correct options.
The consumer packaged goods industry is inventory-intensive, so these mistakes have a big impact. When you set up products in QuickBooks Online, you must pay close attention, or you won't be able to measure gross margin, inventory levels, and other business metrics that impact your cash flow. Ensure accuracy during product setup by verifying data before moving to the next screen and educating yourself on accounting and finance topics.
Optimize Your Product Setup for Accurate Financial Tracking
Setting up products correctly affects every aspect of financial management, from calculating your profit margin to understanding which products are the most profitable. If you need help setting up products or refining your financial management practices, seek professional advice.
Balanced Business Group has informative articles to help you master your business finances. Visit our website to learn more, or contact us today to discuss personalized
