How much are you spending on goods and materials? Do you have too much in stock?
Inventory is a significant investment for any small business and can create a severe strain on cash flow. Surplus inventory yields a zero rate of return and unnecessarily ties up the firm’s cash.
Businesses can avoid these common problems of inventory managements in a number of ways, including:
- Marking down items that don’t sell well. This will keep inventory lean and allow it to turn over frequently. Although volume discounts lower inventory costs, large purchases can tie up the company’s valuable cash.
- Avoiding overbuying inventory. It is important to recognise that excess ties up valuable cash unproductively.
- Scheduling inventory deliveries at the latest possible date. This will prevent premature payment of invoices.
- Purchasing goods from the fastest supplier in order to keep inventory levels low