Creating Cash Flow with Old Inventory

 Creating Cash Flow with Old Inventory

Summary:

Too much inventory ties up important cash for your business. The key is to find the right price to sell your goods. Items that move slowly take up space and money that could be used for more profitable items.

Article Body:

As a retail consultant, there is a comment that many business owners use. It is “I am not giving away my inventory". This statement is most common among store owners when business is bad. It's a shame that most retail owners do not know what inventory is. Inventory has two functions. It either makes you money or it costs you money.

To be profitable, you must have sufficient inventory. However, too much inventory is a bigger problem than too little inventory.

Too much stock ties up important cash for your business. It can also lead to major damage to your goods. The key is to find the right price to move your goods. Items that move slowly take up space and money that could be used for more profitable items.

There are times when you need to adjust your pricing strategy. For example, let us say your selling price is twice your cost. In this example, you pay $10 and the item sells for $20. If it's a slow seller or a discontinued item, what should the new price be? I would discount the price by 20% for 1-3 months, then 50% and finally 75%. If you have to sell at 75% off, you are selling below cost. Cost should never be a factor in reducing the price of an item.

I can hear you screaming now. I am not giving away my inventory. You are looking at your inventory from the wrong angle. Your product is worth what a customer pays for it.

Let us say you sold your product at a 75% discount. How much did you make on that item? Most likely you made a loss of 5 dollars, assuming 10 dollars cost and 5 dollars selling price. This answer is partially correct. The correct answer is that you earned $5.

You turned an item that did not turn a profit into $5 cash. You can use that cash and space for a profitable item. Often, a business does not have enough money to buy the quantities of best-selling products they need. If you take the money from the bad sellers and use it for good sellers, you will more than make your money back.

No matter how good a buyer you are, there will always be items that do not sell. The key is to recognize this and react before too much money and profit is tied up.

An added benefit of taking care of your problem inventory is increased sales. You will gain customers who will regularly look for your discounts in your store. Many of them will also buy your high-turnover items. If you regularly take care of your problem inventory, you will spend less money on markdowns.

Inventory is critical to the success of your business. The most important thing is that you take care of the slow-moving and discontinued items. This will improve your bottom line in the long run.