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Why Inventory Management So Important

Holding inventory ties up a lot of cash. That’s why good inventory management is crucial for growing a company. Just like cash flow, it can make or break your business.

Inventory Management Saves You Money

Good inventory management saves you money in a few critical ways:

Avoid Spoilage

If you’re selling a product that has an expiry date (like food or makeup), there’s a very real chance it will go bad if you don’t sell it in time. Solid inventory management helps you avoid unnecessary spoilage.

Avoid Dead Stock

Dead stock is stock that can no longer be sold, but not necessarily because it expired. It could have gone out of season, out of style, or otherwise become irrelevant. By managing your inventory better, you can avoid dead stock.

Save on Storage Costs

Warehousing is often a variable cost, meaning it fluctuates based on how much product you’re storing. When you store too much product at once or end up with a product that’s difficult to sell, your storage costs will go up. Avoiding this will save you money.

A lot of inventory errors can happen at receiving if your inventory management personnel don’t have enough space to work. Avoid giving them a small office at the end of the room. Eliminating receiving errors will relieve you from all kinds of ugly issues later in the selling cycle, like losing time, money, and credibility.

Stock management devices such as bar-code scanners and stock management software can help drastically improve your efficiency and productivity. These tools will help eliminate manual processes so your employees can focus on other, more important areas of the business.

By effectively managing your inventory, you can ensure that you have the right products in the right quantity and avoid products being sold out or funds being tied up in excess stock. Be sure that your perishable products are sold in time to avoid spoilage and prevent your business spending too much money on stock that’s taking up space in a warehouse or stockroom. So how do you avoid the traps of having too much or too little inventory? With inventory management software, of course.

Good inventory management software should:

Reduce costs, improve cash flow and boost your business’s bottom line
Track your inventory in real time
Help you forecast demand
Prevent product and production shortages
Prevent excess stock and too many raw materials
Allow for easy inventory analysis on any device
Be accessible right from your retail point-of-sale (POS) system
Optimise warehouse organisation and precious employee time
Offer quick and painless bar code scanning to speed up intake
Allow for multi location management, tracking inventory across several locations or warehouses

Inventory management is the part of supply chain management that aims to always have the right products in the right quantity for sale, at the right time. In doing this effectively, businesses reduce the costs of carrying excess inventory while maximizing sales. Good inventory management can help you track your inventory in real time to streamline this process.

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Business Profit Versus Cash Flow

Cash flow and profit are two different financial parameters, but when you’re running a business you need to keep track of both. Here’s how they’re different, why they’re both important and how they intersect with other corporate issues, especially when a company grows rapidly.

A business can be profitable and still not have adequate cash flow. In the worst case, insufficient cashflow in a profitable business can send it into bankruptcy. For example, you’re making products and selling them at a profit. But your product goes through a long sales chain and some of your biggest and most important wholesale customers don’t pay on invoices for 120 days.

Cash flow is the amount and timing of the payments you receive and the expenses that you pay. Specifically, when the money is actually deposited into your bank account or given to you as cash it can be counted as an inflow in your cash flow. When you pay for an expense and the money leaves your bank account or you pay an expense in the form of cash you have on hand, that money is counted as an outflow in your cash flow on that specific day.

Cash flow refers to the inflow and outflow of money from a business. Managing cash flow effectively is necessary for running daily operations, paying taxes, purchasing inventory, and paying employees and other costs. Unlike profit, cash flow is an indicator of how much actual cash is available to a business at any given time.

Your sales may be growing and the money keeps pouring in, but that doesn’t mean you’re making a profit. If you borrow money to solve the cashflow problem, for instance, the rising debt costs that result can raise your costs above the breakeven point. If so, eventually your cash flow will dry up and eventually your business will fail.

A positive cash flow is actually needed to generate profits. You need enough cash to pay your employees and suppliers so that you can make goods. It’s the sale of those goods that helps generate a profit. But if you don’t have the money to make the goods, you don’t end up with the profit. So you really need to structure your business to have a positive cash flow if you want your business to grow and increase profits.

Profit, also called net income, is what remains from sales revenue after all the firm’s expenses are subtracted. It’s obvious in principle that a business cannot long survive unless it is profitable, but sometimes, as with cash flow, the very success of a product can raise expenses.

It may not be immediately apparent that this is a problem. In other cases, you may be aware of the problem, but believe that by reducing production costs you can restore profitability in time to avoid a crisis. Unfortunately, unless you have a clear understanding of all the relevant cost data, you may not act effectively or promptly enough to make the firm profitable again before it runs out of money.

Profit is typically the best indicator of a business’s success as it reflects its ability to actually generate value. No business can truly last long-term without generating a profit.

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Finance and Money Management For Small Businesses

Finance and money management is particularly important for new and growing businesses. Money flow can be a problem even when a small business has numerous clients, offers a product superior to that offered by its competitors, and enjoys a sterling reputation in its industry. Companies suffering from money problems have no margin of safety in case of unanticipated expenses. They also may experience trouble in finding the funds for innovation or expansion. It is, somewhat ironically, easier to borrow money when you have money.

Keeping on top of your business finances, whatever industry you are in, is essential and allows you to keep abreast of what is going in and out of your business.

If you haven’t really had a marketing budget before but have some cash aside that you could use to help promote you better, start by doing a bit of market research into where your target audience digests their daily news, whether they spend their time on social media, what offline publications they read. This will allow you to look at advertising costs or ways in which you can target your market.

You can always use a ledger to keep track of your income and expenses. But with the variety of high quality, low cost, or even free software options, there is no need to try to save a few pennies and do the work by hand. Software is often quicker, easier, and more accurate than pen and paper.

New internal systems help you to work more cost effectively if you were to make the purchase? Sometimes, investment into technology – while sometimes expensive – can be more worthwhile in the long run.

Using technology to manage cash flows is one of the most obvious ways to enhance efficiency. Dropbox, Quickbooks, Google Drive, and Xero all offer great services and cloud-stored accounting software that will help you manage your cash professionally. Some of these services are free, but if you don’t know your way around basic accounting concepts it’s best to pay a professional or buy a premium software package.

If you need more cash, it seems like a no brainer to go out and try to attract new customers or sell additional goods or services to your existing customers. But this may be easier said than done. New customer acquisition is essential to a growing business, but it can take time and money to convert prospects into sales. Selling more to existing customers is cheaper and you may be able to do this by analyzing what they’re buying and why – information that may even lead you to increase your profit margin and, hopefully, generate more cash.

Cash is the lifeline of your business. Even a small business which allows you to work from home and doesn’t employ a lot of people will require some thorough cash management. By extending payables, borrowing when necessary, asking for advances, and using professional software, you can ensure your business survives and thrives over the long term.

One top way of business finance and money management is tracking your cash flow results every month to determine if your management is creating the type of cash flow your business needs. This also helps you get better and better at creating cash flow projections you can rely on as you make business decisions about expanding your business and taking care of your existing bills.