Our inventory management software constantly disagrees with our general ledger, which we usually correct with a year-end adjustment. How do we clean up this inventory variance on our exit runway before a Quality of Earnings audit flags it?

Question

Tyler Smith · Accepted Answer

A Quality of Earnings audit is designed to find discrepancies, and inventory variance is a massive red flag. If your system counts do not match your financial records, a buyer will assume your historical margins are inaccurate and your operational controls are weak.

To clean this up, you must establish a strict cycle-counting process immediately. Do not wait for your annual physical count. Assign the inventory seat on your Accountability Chart to someone who has the capacity and capability to own the numbers, and hold them accountable using your weekly Scorecard.

Your leadership team must use the Level 10 Meeting to IDS the root causes of the variance, whether it is data entry errors, receiving delays, or shrinkage. When you can show a buyer twelve months of consistent, audited inventory reconciliations, you eliminate the risk of a post-LOI price reduction. Clean financials are the bedrock of trust in any transaction.