Read “Warning: You’re Losing Money By Not Using These 8 Inventory Management Techniques!” by Cassandra Campbell to learn more!
I used to dread the word “inventory”. As a part-time cashier in high school, the word inventory only meant one thing: lots and lots of counting. It’s common for businesses to reconcile their inventory at the end of the year by counting up all their physical product and making sure it matches what’s on the books. For big companies like the one I used to work for, this requires all hands on deck!
These days, I understand just how important solid inventory management is. Inventory is a placeholder for money. You paid money for it, and you’ll get that money back (and then some) when you sell it.
Sitting on inventory ties up a lot of cash. That’s why good inventory management is crucial for growing a company. Just like cash flow, it can make or break your business.
Good inventory management saves you money in a few critical ways:
If you’re selling a product that has an expiry date (like food or makeup), there’s a very real chance it will go bad if you don’t sell it in time. Solid inventory management helps you avoid unnecessary spoilage.
Dead stock is stock that can no longer be sold, but not necessarily because it expired. It could have gone out of season, out of style, or otherwise become irrelevant. By managing your inventory better, you can avoid dead stock.
Save on Storage Costs
Warehousing is often a variable cost, meaning it fluctuates based on how much product you’re storing. When you store too much product at once or end up with a product that’s difficult to move, your storage costs will go up. Avoiding this will save you money.
Not only does good inventory management save you money, it also improves cash flow in other ways. Remember, it’s product that you’ve paid for with cash, and you’re going to sell for cash, but while it’s sitting in your warehouse it is definitively not cash. Just try paying your landlord with 500 iPhone cases.
This is why it’s important to factor inventory into your cash flow management. It affects both sales (by dictating how much you can sell), and expenses (by dictating what you have to buy). Both of these things factor heavily into how much cash you have on hand. Better inventory management leads to better cash flow management.
When you have a solid inventory system, you’ll know exactly how much product you have, and based on sales, you can project when you’ll run out and make sure you replace it on time. Not only does this make sure you don’t lose sales (critical for cash flow), but it also helps you plan ahead for buying more so you can ensure you have enough cash set aside.
Inventory management is a highly variable part of doing business. The optimal system is different for each company. However, every business should strive to remove human error from inventory management as much as possible. This means taking of advantage inventory management software.
Regardless of the system you use, the following eight techniques to will help you improve your inventory management—and cash flow!