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The Inventory Blind Spot: How LIFO Can Unlock Massive Tax Savings, Ep #36

The Inventory Blind Spot: How LIFO Can Unlock Massive Tax Savings, Ep #36

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 Inventory is one of the most overlooked levers in manufacturing finance, yet it is often the single largest asset sitting on a company's balance sheet. In this bonus episode of Buy the Numbers, Mike Payne is joined by inventory accounting experts Erica Parra and Cindy Houser from CLA to unpack why inventory accounting methods deserve far more attention than they typically receive. Most manufacturers default to FIFO or weighted average simply because that is how their ERP is set up. But in periods of inflation, tariffs, and volatile raw material pricing, that default choice can quietly cost companies hundreds of thousands or even millions in unnecessary tax payments. This conversation pulls inventory out of the "once-a-year count" bucket and reframes it as a strategic financial decision. Erica and Cindy break down the fundamentals of inventory valuation and identification, then zero in on LIFO as a powerful but often misunderstood tax deferral strategy. They explain why 2025 represents a rare "strike while the iron's hot" opportunity due to elevated inflation and tariff pressure, and why LIFO is truly a use-it-or-lose-it election. Using a realistic mock case study, the episode walks through how a manufacturer with $50 million in inventory could unlock nearly $2 million in cash tax savings by adopting LIFO in the right year. The discussion also covers how the analysis is done, what data is required, how long companies must stay on LIFO, and why this is not a DIY exercise. If you think inventory is just what's sitting on the shelf, this episode will change how you see one of the most powerful numbers in your business. You will want to hear this episode if you are interested in... (0:43) Introducing Erica Parra and Cindy Houser from CLA(3:00) The two core decisions in inventory accounting: valuation and identification(5:21) FIFO, weighted average, and LIFO explained in practical manufacturing terms(7:23) How raw material inflation and tariffs amplify inventory accounting decisions(8:38) When FIFO or weighted average may still make sense(10:41) Grow your top and bottom line with CLA (12:26) Signs that a manufacturer should evaluate LIFO as a tax strategy(15:30) The short-term and long-term questions every LIFO analysis must answer(17:27) How CLA uses inflation indexes and inventory data to model LIFO benefits(20:18) Why LIFO is tax deferral, not tax avoidance(21:14) Internal vs external inflation indexes and dollar-value LIFO(23:11) What data is required and how invasive the analysis really is(24:33) IMTS Exhibitor Workshop: Why planning matters(26:41) Mock case study showing nearly $2M in potential tax savings(29:47) Required holding period and what happens in deflationary cycles(32:06) Why LIFO is not a do-it-yourself calculation(34:17) Using tax strategy to offset rising compliance costs(38:50) Other major tax strategy changes manufacturers should watch in 2025/2026(42:52) How to connect with Erica, Cindy, or Mike to explore an inventory assessment(44:58) Use Hire MFG Leaders to hire your next leader Resources & People Mentioned Grow your top and bottom line with CLARegister for the 2026 IMTS Exhibitor WorkshopUse Hire MFG Leaders to hire your next leader Connect with Cindy Houser and Erica Parra Connect with Cindy on LinkedInConnect with Erica on LinkedIn Connect With Buy the Numbers Follow on LinkedInConnect with Mike Payne on LinkedIn Subscribe to Buy the Numbers on Apple + Spotify Audio Production by - PODCAST FAST TRACK
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