Business Planning Blog

Q: How can I configure Raw Materials inventory and Finished Goods Inventory in my business plan? Finished Goods Inventory must include raw materials, direct labour and other direct expenses.

Inventory level (days) line in the Financial Parameters screen in Rosetta Business Planner seams to be having no affect on the analysis in my business plan.

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A: The Inventory in a business plan refers to all types of inventory: raw material, work in process and finished goods. The internal mix is not detailed.

The calculation of the Inventory is based on the Inventory days, applied on the direct cost of products in the Product and Cost table in Rosetta Business Planner. This cost includes material labour and other costs.

For example - if you have a product that costs, per unit, $10 material, $20 labor, $5 other costs (total of $35 per unit) and you sell 1,000 units per month and you want inventory of 30 days, the inventory that Rosetta Business Planner calculates will be $35,000. You will see it in the Balance for this month and the Purchases and Salaries in the Operating Cash Flow will include the costs of the inventory as well as the cost of sold products.

What happens if there are months without sales (e.g. at the beginning of the business plan) or you want to have inventory more than the usual days - than you can use the line Minimal Inventory in the Financial Parameters screen in Rosetta Business Planner and enter the amount of inventory that you want. If this amount is greater than the inventory calculated by the Inventory Days, this will be the inventory calculated in the Balance.

For example, if in the above sample you also enter $50,000 in Minimal Inventory, the inventory amount will be $50,000. If you enter $20,000 in minimal Inventory, the Inventory will be $35,000 as calculated based on the number of days.