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Running a small business can be hectic, but with proper accounting, you can bring order to the chaos.
When it comes to financial reports, each industry has its own headaches. For pet stores, these include perishable food inventory, housing small live animals, service revenue, and multichannel sales.
But when your pet store accounting is done correctly, you can overcome the overwhelm of managing multiple revenue streams — this way, you can protect your margin and maintain consistent cash flow.
In this blog, we’ll help you set up a consistent process for handling accounting at your pet store. Keeping your revenue in clear categories, closely watching inventory costs, and managing sales tax responsibly are all strategies you can use to keep your business profitable for years to come.
Let’s go into them in more detail.
1. Track by Category
A good first step for better managing pet store accounting is to separate your business into different categories.
These might include:
- Products
- Services
- Live animals
Managing these streams of income separately is helpful because they likely have different costs, revenue patterns, and tax requirements.
Selling products like pet toys and food follows a standard pattern of purchasing inventory, marking up prices, and making frequent small sales. Services, on the other hand, may be given on a subscription basis and involve paying employees for their work and keeping supplies in stock.
Dog grooming, for example, requires you to administer these services yourself or pay an employee and keep grooming supplies on hand. If you house animals at your pet store for customers to adopt and purchase, you need to have food and water and staff to care for them.
You have to keep these related expenses in mind if you want to truly know how profitable this portion of your business is.
And yes, maintaining these categories separately may seem like a lot of effort — luckily, modern digital systems have simplified this process. Look for a point of sale (POS) system that allows you to categorize transactions so you can manage each classification separately.
Keep track of how much revenue is coming in from each one, know what your individual expenses are, and ensure you’re complying with distinct tax requirements.
2. Record the True Cost of Goods Sold
Cost of goods sold (COGS) is a metric retail businesses use to properly report expenses. Remember: There are more factors at play than the cost of purchasing the merchandise you put on your shelves. As you calculate COGS, remember to account for each of these factors:
- Shipping costs: The cost of transporting the item to your pet store is included in your COGS.
- Shrink: This refers to inventory that’s unsellable due to damage, theft, loss, or spoilage (think: expired dog food). Even if you can’t sell it, it’s part of the COGS, unless you’re able to return it to a vendor and receive a refund.
- Vendor credits: Sometimes retail business owners receive credits as a result of vendor mistakes, overbilling, or as part of a loyalty program or promotion. These credits should be taken into account when calculating COGS.
When you offer bundles and other promotions, make sure to record the actual revenue earned, rather than the standard price, to accurately reflect true earnings and profit margin. Accounting for all of these factors keeps your numbers accurate and helps you make more informed business decisions.
Related Read: 9 Pet Store Metrics To Track: Beyond Just Sales Numbers
3. Optimize Inventory Purchasing for Cash Flow
Your purchasing strategy has a major impact on your bottom line. The goal is to buy the products your customers want in the right quantities to avoid overstock and stockouts, which result in fewer sales.
To do so, pay close attention to turnover rates. Buy more of what tends to sell out and less of what tends to sit on the shelves. For example, dog food tends to sell quickly because customers restock it regularly, whereas dog kennels sell less often, as they’re a more long-term purchase. Consider these factors as you determine what quantities to order.
Use an Open-To-Buy Strategy
Try using an open-to-buy (OTB) strategy. This is the process of calculating the amount of money available to spend on inventory in a given period, based on existing inventory levels and stock goals, so you don’t overspend. You can also set automatic reorder points on popular products so you never run out of top sellers.
Plan for Seasonality
As you perfect your purchasing strategy, consider seasonal shifts. For example, flea and tick supplements tend to be more popular in the summer, when these ailments are more common.
Like most retail stores, the holiday season causes a boost in sales, too. More and more families are including pets in their gift-giving traditions, spending extra on food, treats, and toys. You may need to place larger orders during these time periods and dial order numbers back during less busy times.
Related Read: Pet Store Inventory Management: 8 Tips & Tools for Success
4. Boost Profits With High-Margin Items
As you make decisions about your pet store’s product mix, think about profit margins. Selling a variety of pet food and gear helps you bring in more customers, but focusing on high-margin items helps you increase your stores’ overall profitability.
Specialty pet foods, including organic options, tend to earn a high profit margin of up to 40%. Chew toys and bones can earn up to 70%.
Basic pet food and feeding bowls, on the other hand, tend to be low-margin, as they’re widely available and difficult to sell if priced too high. Keep track of the margins for the products you sell and take note of the highest margins. Encourage your employees to upsell them at the register to boost profitability.
5. Mitigate Risk on High-Value Items
When high-value items sit on the shelf for too long, they disrupt cash flow. Be aware of products with higher price points that take longer to sell, and take steps to turn them over faster. At a pet store, these big-ticket offerings might include kennels, cat trees, and luxury pet beds.
You can use a POS system to identify slow sellers. Try marketing these items more heavily, displaying them towards the front of the store, or, if needed, offering discounts.
Some suppliers offer return-to-vendor rules, which mitigate financial loss for retailers. This is an agreement that if an eligible item doesn’t sell, a retailer can send it back to a vendor for a credit or refund. This rule often applies to seasonal items that don’t sell within the intended time frame.
6. Follow Tax Regulations Closely
Sales tax regulations vary by state, but products and services are typically taxed differently. Look closely at the regulations and set your POS system up to charge the correct amount of sales tax for your various offerings.
Understand Tax-In and Tax-Out Pricing
Individual states also have different rules about tax-in versus tax-out pricing:
- Tax-in: Sales tax is included in the listed price.
- Tax-out: Sales tax isn’t included until the product is scanned at the register.
Some states don’t allow retailers to include sales tax in a listed price, so check requirements in your state to make sure you’re in compliance.
Related Read: How Do I Open a Pet Store, and What Licenses Do I Need?
Master Pet Store Accounting With eTailPet
Following sound pet store accounting principles helps you manage expenses and boost profits. As you look over your financial data, don’t forget the details. POS systems have built-in features to help you manage details like:
- Product categories
- COGS
- Purchase strategies
- Profit margins
- Risk on high-value items
- Tax regulations
As you optimize your operations based on each of these factors, a solution designed for your industry provides the greatest benefit.
eTailPet is a cloud-based POS solution built for pet stores. With both general and pet-specific features, you can save time by automating tasks you used to do by hand. For example, eTailPet’s integration with QuickBooks makes it easy to manage your finances.
The system can track your COGS and service revenue, record the value of your inventory, and help you comply with local sales tax regulations. And with real-time sales reporting, you can manage cash flow from any web-enabled device.
To see what eTailPet can do for your business, schedule a demo today!
