When you think of inventory, you might think of a warehouse, cardboard boxes or endless aisles of products stacked high into a ceiling. When you think of inventory, do you think of how it’s impacting a business’s daily cashflow? It might not be the first thing to come to mind, but it sure is important. Inventory management is a critical part to maintaining a healthy cashflow. Ask yourself a few of these questions to see how your inventory management is impacting your cashflow.
How does your business account for your inventory?
Depending on how your business accounts for your inventory stock, your cashflow could look very different. Unleashed Software uses the weighted average cost method.
What’s your inventory type?
Are you selling perishable goods? Is your inventory stock made up of seasonal products? Your inventory type significantly impacts how fast things sell. Fast-moving consumer goods are out of the warehouse before you know it. These products pull in cash faster than slow-moving goods. Fresh fruit is likely to move much faster than snow jackets in the middle of summer. With fast-moving inventory stock, cashflow will come quicker.
Do you have optimum inventory levels?
Inventory stock levels fluctuate daily and are directly impacted by current sales. However, if you’re keeping more inventory than current demand, this will affect your cashflow. More cash is locked up in excess inventory and not available to move around freely. Therefore, you have less cash stored in the bank. Instead, your inventory is viewed as a non-cash asset. It’s important to find the optimum level of inventory to operate a successful business. With just the right amount of inventory in your warehouse, you’ll be able to control more of your cashflow outside of this asset.
Is bulk buying right for you?
Buying in bulk sounds like a good option for many businesses because the wholesale price is attractive. Initially, this seems like a viable solution to save money. However, if the bulk-order is too large and proving difficult to sell off, then you run into trouble. Excess inventory that sits on the warehouse shelves for long periods of time ties up cash. If you are struggling to turn your excess inventory into sales, then cash for research and development might be impacted; your advertising budget or operational expenses might feel the pinch. It’s important to have confidence in your bulk-order to keep cash moving.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.