Small businesses always face the challenges of cash flow. This is a constant battle between monthly expenses and the sales you generate. Those that operate retail outlets or sell merchandise via the internet are also faced with the complicated question of inventory levels. Maintaining the right balance is extremely important to insuring a successful enterprise.
The problem with inventory is quite simple. How much should you keep on hand? This is largely determined by several factors. For example, are there multiple sources for your product or products? If so this can be a big help in the challenges faced by your company.
Single sources for items can pose very complicated scenarios for retailers. The reason lies in the dependability of the supply chain and the number of competing stores also vying for merchandise.
A failure at the factory, an internal issue with wholesaler, or other unforeseen factors can cause fulfillment issues for your customers. If you are dealing with a sole supplier, the adding to your inventory levels is probably a good strategy.
The quantity should be sufficient to cover one or two of your normal ordering amounts at the minimum. That is if you normally order a certain quantity every two weeks, it may be smart to stock enough merchandise to cover an additional two to four weeks to cover any possible interruptions.
If you’re lucky to work with more than one supplier, this can be a great advantage. If one supplier every has any problems, you can easily shift you purchases to your second source. In this scenario its often recommended to purchase from your alternate source from time to time.
This keeps your account fresh in the minds of the wholesaler and perhaps creates a greater willingness on their part to work with you on hard to get orders. Two sources can reduce your inventory needs substantially as long as you keep track of available inventory at either of your sources.
One last thing to remember regarding inventory is that having too much at the end of the year can have tax consequences. The last things you want to do is overstock and then have to pay higher than needed taxes on your goods.
Maintaining the right balance of inventory is difficult but should be reviewed every few months to insure your stock is sufficient, but not excessive. This will help insure that your cash isn’t locked inventory during critical cash flow periods.
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