7 ways to help manage your stock purchases
If cash flow is the lifeblood of your business, then the working capital cycle is its heart. To keep that business heart beating fast and strong, good stock management is critical. Yes, we know it’s a bit, well, yawn… which is why we’ve done the tedious work and compiled 7 clever ways to show your stock purchases who’s boss.
In many businesses, some stock flies off the shelves while other stock likes to get comfortable and lock up cash. This may not always be a bad thing, but the stock sitting around for extended periods needs a good reason for being there. Does it have a better profit margin than the fast-moving stuff (which can cover the cost of holding it longer)? Does it lure in people who buy the fast-moving stock? If not, consider removing it from your shelves permanently.
Some suppliers will hold on to your inventory and dispatch orders (and charge you) only as needed. This nifty arrangement is called ‘dropshipping’ and it allows you to continue to meet customer demand while significantly reducing the time between purchase and sale – speeding up that working capital cycle and the cash flowing in.
Good processes, implemented well, are another piece of the stock management puzzle. Think about what you could do to make yours more efficient. Is there a better way to store and categorise your inventory? Does your current sales software tell you how much stock you’re holding and when you need to re-order? How do you manage returns? Take the time to make sure all of your procedures and systems are operating effectively and that everyone’s up to speed on what’s required.
Make life a little easier by having a sales forecast (which ideally is already part of your overall business plan). That way, you can put a solid purchasing budget in place. Having a comprehensive understanding of supply delivery times, minimum order quantities and other factors can really help here.
Typically, it’s far easier to buy stock than to sell it, but sometimes you just have to resist the urge. If your stock levels have been gradually edging upwards, it may be time to put a temporary stop on new purchases until you’ve made more sales. Then consider some of the other options covered here to help you maintain stock levels that marry with your sales cycle, allowing for those seasonal ebbs and flows.
Buying in bulk can often attract a discount, however you need to look at the bigger picture before taking up that tempting deal. Buying in bigger quantities uses up valuable space and the additional goods may even go out of fashion or spoil before you can move them on. Always think carefully about the pros and cons before being lured by so-called economies of scale.
Don’t let slow-moving purchases become a constant reminder of poor buying decisions. It can be a struggle to let go, but there are plenty of clever ways to finally part ways with dead stock, so no excuses.
A comprehensive and proactive stock management strategy will help keep the very heart of your business – the working capital cycle – humming along nicely.
This information does not take into account your personal circumstances and is general. It is an overview only and should not be considered a comprehensive statement on any matter or relied upon. Consider obtaining personalised advice from a professional financial adviser and your accountant before making any financial decisions in relation to the matters discussed in this article, including when considering tax and finance options for your business.