Accounting & Tax Planning for Apparel companies
Global sales for apparel and footwear have reached $1.9 trillion USD and are expected to break $3 trillion by 2030. Increased demand may be driven by US tax cuts and growth in emerging markets. Demand can lead to increased competition, requiring businesses in the apparel industry to make every dollar count through strategic apparel company tax planning, bookkeeping, and accounting.
How Apparel Company CPAs Are Impacting The Apparel Industry
Apparel companies have recently used creative apparel company tax planning and bookkeeping strategies to increase their earnings. In 2016, Prada was struggling with low profits. However, they reported an operating profit that was 11 percent over what analysts had estimated, thanks to a minor change in their apparel company bookkeeping and accounting.
Before the change, Prada would depreciate furniture and store fixtures within 10 years. Now, they depreciate assets over the lease term of their retail shops, which is 12 years. By extending the useful life of these assets, operating profit went up by 15 percent, or $36 million. This may be closely correlated to the ingenuity of their apparel company CPAs.
Apparel industry CPAs usually deal with regular business and financial transactions while also addressing low-profit margins and customized products that change daily. Generally, apparel company accountants understand sales, customer purchases, manufacturers, and inventory. At Fusion CPA we are blessed with a team of highly experienced apparel company accountants who offer to help you create tailored tax strategies that may improve your retail company's profitability.
Understanding Cash Flow in the Apparel Industry
For all of its profitability, the apparel industry has suffered from an annual ebb and flow of cash. Your apparel company may be flushed with cash for a few months. But when the low season comes, your cash is depleted. There are a few things you can do to make the best use of your cash and energize your apparel company bookkeeping.
Monitoring your revenue and profit means that you need to keep track of the goods you sell and the value of your remaining inventory. Let’s say you have a rack of polo shirts that you never let go empty. You purchased 30 shirts for $5 each. You purchased a second group of shirts for $7 each. Your last group of 15 shirts was purchased at $10 each.
You purchased 70 shirts in total. However, it’s time to track inventory and there are only 20 left. How do you know what cost to assign to the 50 shirts that have been sold? The following are two costing methods you might use.
First in, First out
With this method, you would assume that you sold the cheaper shirts first, the 30 shirts for $5. Then you would assume that the next 20 came from the second-order that cost at $7 each, meaning that the cost of goods sold equals $290. You still have seven shirts at five dollars and 15 shirts at $10, meaning that the cost of your remaining shirts equals $185 (five shirts at $7 and 15 shirts at $10).
Last in, First out
This method is like FIFO. However, instead of matching the cost of the first order of shirts to the number of goods sold, you start with the last order. You start with the 15 shirts for $10, which equals $150. The next 25 shirts cost $7, equaling $175. You have also sold 10 of the shirts that cost you five dollars for $50, bringing your total cost of goods sold to $375 and leaving the cost of your remaining inventory at $100, or 20 shirts of five dollars apiece.
Comprehensive Accounting Advice from an Apparel Company Financial Adviser
Fusion CPA offers comprehensive financial services for the apparel company industry. Our apparel company CFO business advisory team can review production costs that may deplete your finances while doing cost reviews to help increase profitability. Here at Fusion CPA, our apparel company financial advisers may be able to help improve your routine accounting and bookkeeping. Our goal is to help you analyze the profits of distinct product lines while showing you how seasonal buying trends impact your company's finances. Our accountants can also manage your accounts payable and receivable. Are you looking to prepare for expansion or seasonal growth? Our team is ready to provide the personalized systems and resources you may need for your next step. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.