Accurate financial tracking is a cornerstone of successful business operations. For businesses using Found Bank—a modern financial platform tailored for small businesses and entrepreneurs—configuring the Cost of Goods Sold (COGS) is essential for maintaining clear and accurate profit and loss statements. Whether you’re a solopreneur selling handmade products or a growing e-commerce brand, understanding how to add COGs correctly can significantly enhance your business insights and decision-making capabilities.

Found Bank provides tools to automate and simplify finances, including expense tracking, tax calculations, and invoicing. However, setting up your Cost of Goods Sold correctly requires understanding a few fundamental concepts and following a systematic process within the Found platform.

What Is Cost of Goods Sold (COGS)?

COGS refers to the direct costs incurred in producing or acquiring the products your business sells. This can include:

  • Wholesale product purchases
  • Raw materials
  • Manufacturing labor costs
  • Packaging materials
  • Shipping costs for inventory procurement

Properly recording these costs ensures that your profit margin calculations are accurate and that tax filings reflect your business’s true financial health.

Why COGS Matters in Found Bank

One of Found Bank’s strengths is that it automates tax estimates and financial reporting based on your categorized income and expenses. However, for this automation to reflect reality, it’s vital that you correctly distinguish between general business expenses and Cost of Goods Sold.

When you define and categorize COGS accurately in Found Bank:

  • Your quarterly tax estimates become more accurate
  • You avoid overstating profits (and overpaying taxes)
  • You gain a clearer understanding of your profitability

Step-by-Step Guide to Adding COGS in Found Bank

Adding Cost of Goods Sold in Found Bank is a streamlined process, but it must be done systematically to ensure accuracy. Below is a detailed guide:

Step 1: Understand What Qualifies as COGS

Before entering anything into your Found Bank account, you need to assess which of your expenses qualify as COGS. In general, these are directly tied to the sale of each product. If an expense doesn’t fluctuate with sales volume, it’s likely an overhead or operating cost rather than a COGS item.

Step 2: Log In to Your Found Bank Account

Begin by accessing your Found Bank account either via the mobile app or web dashboard. Go to the “Transactions” tab from your account overview page.

Step 3: Categorize Transactions as COGS

For each expense that qualifies as a cost directly related to goods sold, you will need to categorize it accordingly. Here’s how:

  1. Go to the “Transactions” tab
  2. Select the transaction you want to edit
  3. Click on “Edit Category”
  4. Choose “Cost of Goods Sold” from the list of tax categories

If you’re unsure which category to use, refer to IRS Publication 334 for more on deductible COGS items, or consult a tax professional.

Step 4: Add Custom Notes (Optional but Recommended)

For better tracking and audit-proofing, add a note that describes each transaction in more detail. For example, “Bulk order of soy wax for candle production” is more informative than “supplies.” Notes can help you recall specific decisions and ensure that you or your accountant understand the nature of the expense.

Step 5: Review COGS Entries Monthly

As your business grows, it’s wise to perform a monthly review of your COGS entries. Go to the “Reports” section of Found Bank and select Profit & Loss. Here, you’ll see your categorized income and expenses, including COGS.

This monthly review ensures not only consistency but also helps you

  • Spot miscategorized transactions
  • Ensure COGS percentages align with product pricing strategies
  • Project inventory restocking needs

Best Practices for COGS in Found Bank

Correctly setting up COGS isn’t just about data entry—it’s also about consistency, documentation, and foresight. Here are several best practices:

  • Maintain digital receipts and invoices: Use Found’s receipt capture feature to attach proof to each transaction.
  • Separate personal and business expenses: Only business transactions should be reflected on your ledger to avoid confusion and IRS scrutiny.
  • Use consistent categories: Choose the same COGS categories each time to avoid fragmented reporting.

Remember, if you’re a sole proprietor or an LLC taxed as a disregarded entity, managing your taxes largely revolves around recordkeeping. By accurately assigning expenses to COGS, you significantly reduce the chance of errors or audits.

Advanced Tip: Automating COGS Categories with Rules

To save time, Found Bank allows you to create rules for recurring transactions. This can be a game-changer for product-based businesses with regular supply orders.

How to Create Transaction Rules:

  1. Navigate to “Transactions”
  2. Click “More” and select “Manage Rules”
  3. Create a rule to automatically assign the COGS category based on merchant name, expense description, or dollar value

This reduces manual categorization work and ensures consistency across months.

Common Mistakes When Setting Up COGS in Found Bank

Even with a user-friendly system like Found, users occasionally make critical errors in their COGS setup:

  • Including overhead operating costs in COGS: Rent, internet, and software subscriptions are not direct product costs.
  • Double-counting inventory purchase expenses: Ensure that your accounting method (cash-based or accrual) aligns with how you’re recording inventory purchases and sales.
  • Inconsistent categorization: Changing the way items are categorized month to month disrupts financial clarity.

Being vigilant against these errors extensively improves your tax filing accuracy and gives you a more precise picture of your margins.

When to Consult a Professional

While Found Bank simplifies many financial processes, COGS can get complex—especially if you scale beyond basic inventory. If your COGS begins involving international suppliers, manufacturing work-in-progress, or complex logistics, you may want to hire a bookkeeper or accountant periodically to review your system.

This doesn’t mean outsourcing your finances entirely but rather ensuring that the structure you’ve implemented is sound and compliant. Think of this as a financial tune-up for your business.

Conclusion

Properly setting up your COGS in Found Bank isn’t just about bookkeeping—it’s about building a solid foundation for financial clarity, profitability, and tax preparedness. By identifying qualifying costs, categorizing them correctly, and reviewing your reports regularly, you’ll be positioned for success whether you’re managing a small shop or aiming for the next level of growth.

Take the time to set up your COGS the right way the first time and update your practices as your business evolves. Your bottom line—and your peace of mind—will thank you.