Your Margin Is Not on the Invoice

Landed cost is the whole cost of getting a unit onto your shelf: the invoice, plus freight in, duty, brokerage and handling. Those costs belong in inventory and come out as the goods sell, not in the month the freight bill arrived. Expensed as paid, they make a good buying month look expensive and a slow one look profitable, and they make margin by product meaningless.

Once landed cost is right, gross margin by SKU and by vendor becomes a number you can act on: which lines are worth carrying, which vendor's terms are quietly costing you, and which item you have been selling at a margin you never actually made.

There is a tax layer as well. Smaller businesses are excused from the complex inventory-capitalization rules and may use simplified inventory accounting instead, with eligibility resting on average gross receipts over the prior three years against a ceiling that rises with inflation. Worth rechecking each year, because one strong year can move you.

Every pallet is cash you have already spent. Turns and days-on-hand by category are what tell you how much of your working capital is standing still, and which lines are dead rather than slow. We report them alongside the financials and map the cycle — when cash goes out to buy, when it comes back, and how deep the trough gets — so a line of credit is arranged against a plan rather than in the trough, where it is priced worse.

This is built from your inventory system's export rather than from the ledger, so what we can report depends on what your system holds. For most distributors that export already exists and has never been used for anything.

This is the section that decides whether your gross margin can be trusted. Vendor rebates and co-op advertising allowances are earned against purchases and sales that happened over months, and recognising them when the credit memo lands puts income in the wrong period and flatters whichever month it arrives in. Accrued as earned, they sit against the activity that produced them.

Customer chargebacks and deductions run the same way in reverse. A deduction taken in March against a shipment in January is not a March expense, and a distributor who has never accrued for them is reporting a margin that has not survived contact with the customer yet. We accrue both sides and show you the net, which is usually the first time the real margin on an account is visible.

Every state sets its own economic nexus test and they do not agree with each other, and a distributor usually has physical presence to consider as well — inventory held in a state can create an obligation on its own (New Jersey Division of Taxation). We assess it state by state against each state's own current guidance and register you where you need it.

The bigger exposure is the certificates. A sale for resale is exempt only if you are holding a valid resale or exemption certificate from that customer, and in an audit the certificates are the first thing asked for. Every exempt sale you cannot produce a current certificate for can be reassessed as taxable, and the tax comes out of your margin rather than the customer's pocket. We keep a status list of who is missing one and whose has expired — collecting them is yours, but knowing which ones to chase is ours, and it is a great deal cheaper than finding out later.

This page is about whether we recognize your business. The inventory-capitalization mechanics, the measurement of rebate accruals and each state's own nexus and certificate rules are worked through against your own facts in an engagement — and the thresholds move with inflation, so we check them against the year being filed rather than restating them here.