Inventory is what your company holds in stock at any given time. Controlling inventory can be a specific designation. It is receiving stock, distributing it correctly, stock flow, which is forecasting, storage and space control, quality control and more.

Inventory budgeting is a vital part of the budgeting process, yet it can be the most difficult to set up, for a variety of reasons.

There are various factors that come into consideration when processing your inventory budgeting. You would need to look at the current market, international and local; The amount of stock that you would require could change the value of your expenditure; product customization, ie creating something specifically for a particular customer. You will only discover half of your company's needs and requirements, once you have started the process.

There are a few ways to do inventory budgeting. It would ultimately be best if a ladder system were used; ie raw materials, current production and finished goods, but there will normally be a dominant system that an individual company will be more comfortable using.

Raw Materials budgeting is the very beginning of any project. That is every single item that you would require to even begin a project. You would need to ensure that you know what your project needs to succeed. You would begin by normally working off a design and understanding the quantity you would require to begin and to carry you through the project. You would need to deduct any stock related to this, that you may already have on hand. Ensure that your purchasing plan keeps you ahead of the project, so everything is on hand as you need it. Bear in mind that this system cannot always work, for example in a case of doing something to customer specifications. You may have a general idea of what is required, but there will probably be a few unforeseens in situations like that. Along with your purchasing plan, you also need to budget the labor. How long will or should this project take. What are the value of your man hours and how will it affect the company if there should be a strike, or overtime or even a machine breakdown. These are just examples of a few what ifs.

And ending inventory can be determined through, what you brought forward in your stock, to what purchases were necessary for your project it is the remainder of the stock, or stock to carry forward, into the next period.

You can calculate your production budget by adding what you want the sales to be and what inventory you want left over at the end of the period and then subtracting the value of the inventory that you had in the beginning of the period. This would be in direct regard to manufacturing or fabrication. Should you be a wholesaler, retailer, distributor or reseller, then it would simply be a matter of stock control. What you have on the floor, in your storeroom, what your average sales are, therefore telling you the quantity of what you should purchase to maintain a consistent flow.

Some companies prefer to do a total budget. They may have quoted a certain amount and all costs would need to be covered by the sale. This is not always a wise way to budget. Sometimes circumstances can be so unpredictable that the loss the company may experience, may be seriously damaging.