However, if you work in a manufacturing or product-based business, chances are you will very soon find out that QuickBooks Online has limitations. Even though this tool is extremely efficient when it comes to working with your financial information, it was created mostly for the needs of “buy and sell” companies, not “make and build” ones.
Using a spreadsheet to track your production line is not enough anymore. It’s time to think about the integration of manufacturing capabilities into your QuickBooks Online account. Here are reasons why using manufacturing extension has become vital.
1. The “Bill of Materials” Problem
There is one major limitation within the typical QBO software and that is the absence of proper functionality for creating a Bill of Materials (BOM). In the case of a retail business, you will purchase a widget and then sell it. If you are dealing with manufacturing operations, you purchase raw materials and components to create a product.
QBO comes with the possibility to create a Bundle, but this does not take away the components included in that Bundle when selling. In other words, it does not track whether you must use two screws, one bolt, and a piece of metal to make “Product A”. The solution would be an add-on that manages the Bill of Materials properly.
2. Accurate Costing and Profitability
Are you sure of how much does it cost to manufacture your product? Many manufacturers assume that material costs are enough. But to understand if you make money or lose, you should include the cost of labour, overheads, and run time of machines.
Standard QBO cannot estimate the above-listed costs for each individual unit. For manufacturing, there is a Manufacturing Extension, where all “shop floor” costs are recorded. They estimate labour hours and run time of machinery, allocating their costs to Work in Process (WIP), and later to the manufactured item. This helps to see what your actual margins are and prevent you from undercharging for your product.
3. Solving the Spreadsheet Problem
In cases where QBO fails to deliver satisfactory results about inventory management, Excel spreadsheets become common in most companies. There is an Excel file which shows the material needed for future projects and one which shows the current material on hand. Manually entering data causes problems since it separates what you physically have from your books in the software.
Double entry in this case is error prone. Your accounting software assumes you have more items when the inventory team fails to update the spreadsheet on time. In such instances, using a manufacturing extension ensures bidirectional synchronization in your processes. Once the manufacturing team completes the construction process in the shop, the inventory levels in QBO are automatically updated.
4. Efficient Work Order Management
For the effective management of production processes in their entirety, you require a workflow. Unfortunately, QBO has no means of issuing “work orders” for your production line. How do you know whether the job is queued, being processed, or packaged for shipment?
An extension to QuickBooks Online will provide you with more efficient work processes. This way, you will be able to create work orders, picking tickets, and production schedules. With such tools at hand, you are going to be able to provide realistic delivery estimates to your customers and effectively organize the work processes of your employees.
Conclusion
QuickBooks Online is ideal for managing your business finances, yet it isn’t what you need for organizing manufacturing processes within your company. A QuickBooks manufacturing extension will provide you with full control of your inventory, costing process, and production procedures.
