Inventory management and cash flow: how to swim without sinking

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A balance sheet reflecting a working capital that has been clearly mishandled can teach small businesses operating inventory a lesson or two about the consequences of a badly managed stock. A lesson learned, now what? How to manage inventory so not to hurt the cash flow and endanger the future of your company?  Stock control is a highly challenging task unless you learn certain routines. Let us try and break it down for you.

A cash flow is defined by Investopedia as the net amount of cash and cash-equivalents being transferred into and out of a business.  Once you purchase inventory your money gets tied up in non-cash assets and whether it returns or not depends on multiple factors. When it comes to inventory-centric businesses, cash flow reflects how efficiently you purchase, replenish and sell your stock. Not something you can play by ear, is it? As said earlier, once you adopt some routines and see to maintaining them further on, your cash flow will stabilize. You best course of actions would be:

Start tracking your supply and replenishment habits

When you company’s main resources are laid out for goods, their storage and maintenance, finding optimal inventory levels is key. Surplus inventory increases your expenditures and leaves much less cash available to cover liabilities or invest in business growth. However, when you are understocked, there is a chance that customer experience can be ruined by a delayed shipping or you might fail to respond to the demand altogether.

Inventory levels that are right on point is not something you figure out in a week or two.  You need to keep tracking and collecting data on a monthly and seasonal basis, as well as quarterly and annually, always contrasting and analyzing data. Manual inventory tracking is highly cumbersome and time-sucking in this respect and, frankly, is hardly an option.  Automated purchase order management tools like HandiFox Online, on the other hand, are instrumental in providing real time up-to-date inventory reports that let you drill down on a chosen item or site and see if you have enough of a product, if you need more or if you need to do an inventory transfer across warehouses, as well as see the bigger picture –  the amount of items sold and their percentage share in overall sales.

HandiFox frees up tons of your time by populating Purchase Orders (POs) based on:

  • How productive an inventory item has been (‘sales rate’ is the app’s term) for a chosen period. You can also make the software calculate the safety stock for any period of time following this day.
  • An average amount of items of the chosen type per week – what it means is you see how well a certain item has been doing on a weekly basis on average and work out how many more of this product you would need to reorder to meet the demand for a certain number of weeks ahead.
  • Reorder points and desired quantity on hand. The app notifies the user if any of sites (warehouses) are low on some items so you can act on this data right away and generate a Purchase Order.

Always keep tabs on how well your inventory is doing

There are items that are selling well and there are the ones that are performing rather badly or just sitting on shelves. To be able to identify those, you absolutely have to put together sales reports. Again, it is doubtful anyone has that much time to splice all data in an Excel spreadsheet. This is not bringing in any visibility – what it brings is ongoing headaches and lost time. An inventory management app should be able to generate sales reports that would allow you to spot your best-sellers and make sure you stock up on them in a timely manner, single out slow-moving items and think on the measures to reduce them or incentivize clients for a purchase, and, finally, see ‘dead’ inventory that should not be accumulated.

To give you a better view of your inventory’s productivity, HandiFox generates a series of sales reports. Your go-to reports here would be:

  • Report on items’ sales rates showing how many have been sold, their average price and contribution to closed sales in %.
  • Sales by item/service with all the details bringing up all transactions with a chosen item for a given period of time.

Give your order fulfillment a tune-up


Your order fulfillment has a major role to play in cash flow matters.  Your ability to process orders is largely impacted by your relationships with supplies. Having to wait on the supplier to pack and deliver your purchase orders for a day longer than you can afford is a recipe for disaster. Optimize the wait and fulfillment times so to avoid cash blockage and customer complaints. HandiFox provides purchasing reports that detail how products by different vendors have been performing – you can rely on this data to make up your mind whether to order more/less from these companies.

Be proactive – manage your suppliers more productively, always check with inventory reports about stockouts, and ensure on-time delivery – these are the three surefire ways not to drop the ball but to consolidate customer satisfaction and mend your cash flow problems.

Balance

All things considered, a business owner’s job is to learn the art of striking a balance. A poor judgement of inventory on hand and its productivity, a lack of ability to establish inventory levels that are up to scratch, and subpar order fulfillment will have a long-term undermining effect on your cash flow. Go ahead and try out a stock control system with real-time inventory intelligence to be able to make data-driven decisions on your cash flow management.

The SmallBizRising Blog is designed to be an educational content hub pulling information, best practices and practical advice for the small business owner and features topics including accountingmarketingtechnology and more.  Be sure to subscribe to stay up to date with new content as it is posted.  The blog was created by The Neat Company and receives contributed content from a group of contributing companies that provide technology, services and solutions to small businesses.

This article presented by:
Handifox
HandiFox™ is an inventory & sales management software solution by Tecom Group, Inc. that allows small businesses to automate the inventory processes to leave inefficiency behind.
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