Good record keeping is next to godliness. Or was it cleanliness? For a business it should definitely be good record keeping - one of the most important things for a business. Without proper records a business can’t know how much revenue is being brought in, what is being spent and how much profit is being generated.

One of the key players in this record keeping party is cost of goods sold (COGS). Without knowing what your cost of goods sold is, you cannot tell what part of your revenue is profit and what part covers costs. Ultimately, a business won’t last long without accurate record keeping.

Cost of goods sold are the direct costs attributed to the production of the goods sold by a company. This includes the materials associated with the production along with the labor costs that it takes to make a product or service.

In laymen’s terms, the cost of goods sold is the cost of creating the product a company sells.

These costs differ from business to business.

• For a plumber the cost of goods sold are the labor and materials associated with a specific job.
• A baker’s cost of goods sold include the ingredients to make an item along with the costs of labor to create the items.
• For a graphic designer or web developer, the COGS are considerably different. Most of their costs are tied up in time and labor with very little material costs.
• A retailer’s cost of goods sold includes the cost from the supplier plus any additional costs necessary to get the merchandise into inventory and ready for sale.

Regardless of industry, the goal of a business is to turn a profit. If you don’t know how much you spend making your goods, then you don’t know what your profits are? Are you even turning a profit?

Without proper records, profit isn’t the only thing you stand to lose. Keeping track of your costs will also help you identify which areas of your business are performing well and which areas are costing you money.

Your business may be losing money, knowing what it costs to do business will help identify those problem areas.

Knowing your production costs doesn’t just help you plan for the short term, but for the long term too. Good record keeping is just as important as good planning. If you don’t know what you can and cannot afford, you cannot accurately plan for the future.

Part of planning for the future is being ready for the inevitabilities that are sure to affect your business. One of those inevitabilities is something everyone has to deal with - taxes. Without proper record keeping you run the risk of over or under paying which will cost you money.

Knowing what it costs you to do business will help you in every area of your business whether its paying taxes, forecasting for the future or looking at the profitability of your business.  Good records can sometimes be a pain, but if kept well, they will save you money and maybe even your business.

Wouldn't it be nice to use your excess capacity to expand your market share? BizX works to market and sell your extra inventory, gaining you new business at your cost of goods sold.