Whenever the gross profit percentages in a sales department is off from the established norm, there are really only five reasons why this has occurred.

The five reasons are:

#1. Incorrect monthly inventory. This is the most common reason for large swings in gross profit percentages. An accurate monthly inventory is essential for an accurate financial statement.

#2. Poor inventory security. Approximately 70% of all merchandise missing is related to internal thefts, and almost 30% from vendors.

#3. A change in buying/selling habits. Always price all merchandise to achieve a pre-determined gross profit percent. Don’t allow pricing to be set by employees or suppliers. When making outside purchases, shop your best deals. Comparison shop your suppliers from time to time to be certain of receiving the best price.

#4. Change in your sales product mix. Monitor the sales mix analysis. A great way to do this is through the aid of the color graphs you receive monthly with the return of your books.

#5. Did your accountant receive all your invoices, whether paid for or not? We need all invoices so to accrue the costs to the proper period.

It seems that the number one reason for distorted gross profit percentages is an inaccurate inventory. The monthly inventory must be taken by a responsible individual. Here are some steps to follow to improve the procedure for taking an inventory.