04 Dec 2010
Did you know that inventory is one of the great hidden costs of business?
Business owners should understand its importance of keeping it under control. Visit http://www.financialforeplaybook.com for more on this story…
Is Inventory Killing Your Business?
Did you know that inventory is one of the great hidden costs of business?Very few business owners understand its importance and the significance of keeping it under control. Inventory ties up your cash while providing little benefit to revenue – until the items are sold. Excessive inventory can weigh a business down and ultimately lead to revenue losses.
Excess inventory is so often the primary cause of cash flow problems that it is worth your time and effort to consider how your current stock holdings are affecting the health of your business. And it’s why you should have a clear understanding of how much inventory you have, how much you should realistically have, what it’s worth today, and how old it is.
Every time you buy stock for your business, you should see the purchase as an investment. Like any other investment, you should expect it to provide you with a financial return in a short period of time. If there is a significant gap between when you buy the goods and when you turn them into cash by selling them and collecting the money, you need to re-assess the value of your investment.
When you spend before you earn you are effectively taking out a loan for the intervening period. Very often this will require a ‘real’ loan from some sort of finance company, a delay in paying suppliers or a delay in paying yourself. If you want to improve the cash flow and health of your business quickly and without spending a dime on advertising, take some time out today to review your stock levels and get rid of excess inventory.