Inventory

How to use

The Standard Financial Model and Runway Tool share a core component on the Forecast sheet that handles inventory purchases and balances. The section is optional — ignore or remove if unneeded.

The model uses forecasted sales, minimum stock levels, and lead time from purchase order to availability to forecast when to place orders and when to pay for them. Outputs: inventory levels, purchases, work in progress, and related balance sheet accounts.

The model calculates dollar inventory, not unit counts. Units can be added using COGS per SKU if needed.

How it works

Inputs on Get Started. Each is optional and combinable:

• Number of Months lead time from purchase to in inventory — positive numbers only. Applies a lag from purchase to when inventory is available. Work-in-progress and finished goods are not split out.
• Safety Stock — ending inventory as % of COGS — keeps a buffer. Combinable with lead time.
• Minimum Order Quantity (MOQ) — dollar value. If calcs say you need $500 but MOQ is $1500, buys $1500 and runs down until next order.
• % of Inventory Purchase paid at time of purchase — how much is paid upfront.
• Remaining purchases, paid N days post-purchase — handles inventory accounts payable for the remainder.

Value of Inventory Balances

On Forecast, inventory balances break down as:

• Inventory Value, Beginning of Period
• New Purchases, manual entry — from the core expense section
• New Purchases, based on lead time — automatic, using the lead time assumption. Estimates sales with lag from purchase to availability; doesn't reorder if an order is placed but not yet delivered.
• New Purchases, based on safety stock (optional) — tops up inventory to meet the safety stock level.
• New Purchases, based on MOQ (optional) — adjusts upward when orders must meet the MOQ. Only active if MOQ > 0 and inventory would otherwise go negative.
• New Purchases, from Actuals (optional) — if actuals are used, pulls from there and overrides the forecast
• Total New Purchases
• Cost of Goods Sold — reduces inventory balances
• Inventory Disposals (optional) — for sales or losses from actuals
• Inventory Value, End of Period — negative in early months usually means a lead-time gap. Delay sales until lead time is satisfied, or add opening inventory on Statements.

Inventory Accounts Payable

If you use the payment timing inputs, this calculates the value of unpaid inventory purchases:

• Inventory Accounts Payable, Beginning of Period
• New Inventory Purchases — rolls in total purchases; reduced by the payments below
• Paid at time of Purchase (optional) — from Get Started
• Paid via Days Accounts Payable (optional) — handles the remainder if the upfront % is less than 100
• Net New Inventory A/P from Actuals (optional) — pulls from actuals and overrides the forecast
• Inventory Accounts Payable, End of Period

Finished Inventory

Optional section that separates finished inventory from total (including WIP), to verify purchases cover period-by-period sales needs:

• Finished Inventory, Beginning of Period
• Additions to Finished Inventory — uses lead time lag from Get Started
• Manual Additions (optional) — for additions not captured in the forecast (e.g. prior-to-start purchases)
• COGS and Inventory Disposals
• Finished Inventory, End of Period

Usage notes

• The "Product & Materials" category on Forecast represents the cost of sales tied to inventory production. Allocate other cost of sales (fulfillment, shipping, support) to a different category to keep inventory accounting clean. Or use the "Per Row Data Flags" checkbox to include/exclude lines from inventory accounting.
• You can also input inventory purchases directly on Forecast (manual, drivers, or linked from custom calculations).
• All inventory types share the same production assumptions. For more granularity, replicate the section per type.

Background

Inventory is goods held for sale or production. Cost of goods sold (COGS) are the direct costs of producing sold goods. When inventory is sold, its cost moves from the balance sheet to COGS on the income statement.

COGS matches expense to the revenue of sales (the matching principle) but may not reflect cash outlays in that period. Lead times and upfront purchases mean inventory cash can precede revenue cash significantly. Managing inventory is about balance — too little risks lost sales, too much means holding costs and write-off risk.

Common industries: manufacturing (raw, WIP, finished), retail, wholesale.

Inventory sits in current assets on the balance sheet at the lower of cost or market (conservatism principle).