Improve your inventory management to increase your cash flow
Smart moves in this area have a positive effect on your bottom line.
Are you struggling to get your cash flow management under control?
Consider taking a look at your inventory management.
Inventory management is a key — but often neglected — area that affects your cash flow.
There are many other ways to increase the cash flow in a small business.
Making smart moves in this area has direct impact on your bottom line.
Analyse your current inventory
If you have inventory that is not moving fast, it means that money is sitting on the shelf doing nothing. More importantly, that money is tied up and you cannot it for other purposes. You need to find ways to free up that money.
In short, if it is not selling, get rid of it. If necessary, sell it at a discount.
I know you paid good money for it, but unless it is selling well, it is getting more and more outdated the longer you hold on to it.
Do not be emotional about holding on to products that are not selling.
Here are the key questions that you should be asking:
1. Which of your products are selling the fastest?
These fast movers are interesting because there is ample customer demand. The first question is whether these products are contributing to your bottom line.
Too often, I see businesses selling products that — when gross profit is calculated — turn out to be selling at a loss. If that is the case, see if you can increase the price to break even.
Your next step is to determine why these products are doing so well and if there are similar products that you can add that will help to increase your sales and — by extension — your cash flow.
It is also interesting to see if you can add similar or complementary products in a (slightly) higher price category. Meaning, products that have a higher profit margin.
2. Which of your products are selling the slowest?
This is a similar exercise to the previous one, except now you are looking for slow-moving products. Once you identify them, try to determine why they are not selling well and what actions you can take to change this.
3. Which products are responsible for 70–80% of your yearly sales?
This is an exercise that I enjoy doing with clients. The objective is to identify where your money is coming from.
These products are the foundation of your business and worth analysing further to better understand them. This gives you information about where your business can expand.
If a product is not selling well, experiment to see if you can change the situation. If not, get rid of the product and free up your money. Even at a discount, because any money coming in is better than no money coming in. Then use the money you freed up to buy products that generate higher sales so that you can increase your cash flow.
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Hi, I’m Tonia Dabwe, founder & director of GuideMyGrowth.com. At Guide My Growth, I help small and medium businesses generate higher profits so that they can grow faster without having to depend on outside funding.
