Money Matters

Financial strategies for US distributors: Five ways to improve profitability

From cost control to automation, see the strategies and tools COOs and CFOs trust to drive growth in distribution.

Distribution COOs and CFOs are essential to maintaining financial stability, driving efficiency, and enabling strategic growth in an industry defined by tight margins. To remain profitable and scale sustainably, distribution leaders must master cost structures, inventory management, and financial reporting.

Your five focus points

1. Driving sales and business growth

Finance and operations leaders should strategically analyze and segment sales data to identify profitability and growth potential across customers, markets, and products. Key considerations include:

• Customer profitability analysis: Determine which customers contribute the most to overall profitability.
• Market segmentation: Identify high-growth markets and optimize resource allocation.
• Product performance metrics: Assess margins on specific products to prioritize profitable lines.
• Key performance indicators (KPIs): Track sales growth, customer retention, and profit per customer segment.
• Growing sales without increasing expenses: Leverage data-driven decision-making to optimize pricing, enhance sales team productivity, and implement automation, allowing you to scale operations without a corresponding rise in costs.

2. Mastering distribution costs

Unlike manufacturers, whose costs are closely linked to production, distributors must focus on logistics, warehousing, and procurement expenses. Group costs into categories such as:

• Direct costs: Inventory procurement, warehousing, and transportation.
• Indirect costs: Facility maintenance, IT systems, and personnel not directly tied to order fulfillment.
• Variable vs. fixed costs: Understanding the balance between fixed costs (e.g., rent, salaries) and variable costs (e.g., fuel, carrier fees) can help you optimize budget allocations.

3. Optimizing inventory management and costing

Effective inventory and cost management are essential for maintaining profitability, reducing waste, and ensuring customer satisfaction. Key considerations include:

• Accurate inventory tracking: The right enterprise resource planning (ERP) software will monitor inventory levels to help prevent stockouts, overstocking, and discrepancies. It may also include AI-assisted forecasting tools that can predict sales patterns, so you can  repare efficiently for various scenarios.
• First-in, first-out (FIFO): An inventory management approach that ensures older inventory is sold first, minimizing spoilage and obsolescence.
• Just-in-time (JIT): A stock control method that reduces holding costs. It requires precise demand forecasting, which a good ERP system can deliver.
• Weighted average costing: Useful for businesses handling large volumes of similar products, providing a consistent cost basis.
• Dropshipping and third-party logistics (3PL): Minimizes overhead by outsourcing storage and shipping.

It’s important to ensure that your chosen inventory valuation methods align with your business strategy and accounting compliance.

4. Powering accurate reporting

Advanced analytics and timely financial reporting enable distribution leaders to make informed decisions. Essential metrics include:

• Gross margin return on investment (GMROI): Measures profitability of inventory investment.
• Inventory turnover ratio: Indicates how often inventory is sold and replaced over a given period.
• Days sales outstanding (DSO): Helps assess cash flow by measuring how quickly invoices are collected.
• Cost to serve (CTS): Evaluates the total cost of fulfilling customer orders, including warehousing, shipping, and handling costs.

5. Transforming financials with tech

The right solution not only simplifies and automates your financial processes, it also connects them seamlessly with operations management capability in a single, easy-to-use platform. Look for:

• Real-time data analytics: Provide instant insights into sales, inventory, and expenses.
• Predictive forecasting: Helps optimize inventory levels and cash flow management.
• Integrated financial systems: Ensures seamless reporting and compliance with accounting standards.

Selecting the right distribution accounting software

Choosing the right financial management software  is critical for your business to thrive. Prioritize features such as:

• Advanced inventory management: Real-time tracking of stock levels and movement.
• Automated invoicing and payments: Streamlines accounts receivable and payable processes.
• Regulatory compliance support: Ensures adherence to financial reporting standards and tax regulations.
• Scalability and integration: The software should integrate with warehouse management systems (WMS), customer relationship management (CRM), and e-commerce platforms.

Sage offers a comprehensive suite of accounting and ERP software designed to manage the unique needs of the wholesale distribution industry. With a range of systems to suit small businesses through to large, multi-location operations, we provide robust tools and support to help you manage complexity, boost profitability and build resilience.

Sage Intacct for Distribution

• Cloud-based financial management, ideal for small to mid-sized distributors seeking advanced automation and real-time insights.
• Track inventory across multiple locations, manage stock levels, and optimize order fulfillment.
  Reduce manual errors and accelerate cash flow by integrating automated invoicing and payments directly with e-commerce platforms and point-of-sale systems.
• Stay compliant with automated audit trails and customizable reporting for GAAP and ASC 606.
• Easily connect with CRM systems, warehouse management software, and other third-party applications.

Sage X3

• A powerful ERP system for large and complex distribution operations. Designed for organizations requiring deep functionality and global reach.Streamline inventory management with real-time tracking, demand forecasting, and multi-warehouse control.
• Automate invoicing and payments across multi-currency and multi-legislative environments.
• Enhance regulatory compliance through built-in governance tools for industry standards including SOX and IFRS.
• Flexibility allows for easy expansion across new markets while integrating seamlessly with logistics and supply chain platforms.

Sage 100

• An ideal solution for small-to-medium distributors seeking robust accounting and distribution capabilities.
• Tools for serialized inventory tracking, lot management, and inventory forecasting.
• Simplify billing and cash collection while minimizing manual intervention.
• Stay compliant with integrated audit trails and customizable financial reporting.
• Easily connect with e-commerce, shipping, and other operational systems to maintain efficiency as you scale.

Why choose Sage for Distribution?

With decades of experience, Sage is the trusted partner for US distributors, offering solutions that address these key challenges:

• Multi-location inventory management: Manage inventory across multiple warehouses with real-time updates to prevent stockouts and overstocking.
• E-commerce integrations: Easily connect with platforms like Shopify and Amazon for streamlined order fulfillment and invoicing.
• Financial forecasting: Leverage real-time data and analytics to optimize cash flow and make smarter, faster business decisions.

Unlock the secrets to financial success in distribution. Discover how leading COOs and CFOs optimize their operations with Sage technology and tools.

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