How inventory affects your business finances
Business owners need to be aware of the fact that how effective they are with the management of their inventory will directly affect their business finances. All too often business owners overlook the need for effective management of their business finances but the reality is that how well you manage your inventory will affect not only your cash flow but your profit margin, as well. The bottom line is that if your business is involved in selling a product then it is crucial to have the best inventory management. However, this can be a difficult process. Here is what you need to know about how inventory affects your business finances-
- It is crucial that your inventory has a positive rate of return-While this may seem like an obvious conclusion it is actually much more. Keep in mind that the money you spend buying inventory could be spent somewhere else. This means that you must be able to not only sell your inventory at a premium price but sell it quickly, as well. The problem comes in inventory management with the amount of risk that is involved. You can never be sure how much inventory you are going to be able to sell. The longer your inventory stays on the shelves or in a warehouse the more money that you will be losing. This means that it is critical for your business finances that you buy carefully and maximize the money you invest in your inventory.
- It is crucial that you don't buy too much inventory-Many time's inexperienced business owners find themselves carrying to much inventory. This can be crushing to your business. You want to make sure that the money you have put into your inventory is working for you. Do not give into the temptation of buying something just because it seems like a good deal. You want to be able to have some idea as to how fast you can move something before you commit your business finances to it. This means that it is critical for your business finances that you don't tie up to much of your cash in your inventory.
- It is crucial that you get rid of inventory that is not moving-Many times business owners make the mistake of hanging onto inventory with the hopes that it will someday be "hot". This rarely a good idea. Most of the time this simply does not happen. You need to take inventory that has been sitting for a long time and get rid of it. The first step is to contact your supplier and see if they will take it back for credit. If that is not possible you need to mark it down for a quick sale. Finally, if all fails then consider donating it for a tax decision. This means that it is critical for your business finances that you don't have money go to waste on inventory that is not moving.
- It is crucial that you look at slow moving inventory-It is important to keep in mind that slow moving inventory could do as much damage to your business finances as inventory that is not moving. If you have inventory that is doing very slow in sales then you need to take whatever measures you need to in order to get it moving. Many times it can be helpful to look at what your competition is doing to determine what could be slow moving inventory for you. Once you have identified it you can then get it moving or get rid of it. This means that it is critical for your business finances that you don't have money tied up in inventory that is not profitable.