Business owners are almost constantly being reminded of how important good cash flow is to the survival of their business and it is fair to say that it is a message worth repeating when you consider what happens if you find yourself struggling to pay your bills on time.
One of the classic but avoidable mistakes that can prove costly is when you don’t get your stock control right, meaning you might have cash you could do with tied up in stock that is just sitting on the shelves.
Here is a look at how to improve your efficiency when it comes to ordering the equipment and supplies your business needs. There is an overview of why stock management is so important, how to finance a large purchase, plus tips on negotiating deeper discounts and creating an accurate inventory system.
Think smarter and save your cash when you can
Even successful businesses with a full order book can come under pressure if they don’t get their stock management strategy spot on.
If you look around your store room and find stockpiles of supplies just sitting there and the pile never seems to be getting any smaller, despite the fact that your business is busy. This could be a big clue that you need to overhaul your inventory management process and free up some of that valuable cash that is sitting on the shelves and not in your bank.
It is always a good idea to stay ahead of trends and see what is new at Reliant Finishing Systems and other suppliers you might use, but there are ways and means to get what you need for your business, without putting a dent in your cash flow.
Big expenditure requires careful planning
If you have decided to invest in a new piece of equipment that has a big price tag attached to it, think about how you are going to fund that purchase in the most efficient way possible.
Even if you have the cash sitting in the bank to pay for the equipment outright, there may be a time in the near future when you could do with that cash and then regret leaving your cash flow so vulnerable.
Look at finance and lease deals to see if there are tax advantages as well as cash flow advantages, and work out how long you are likely to need the equipment for, as that can make a difference to how you structure the deal to acquire the item your business needs.
Economies of scale
It is often the regular purchases that can have such a deep impact on your cash flow if you don’t get your buying strategy right.
There are downsides to ordering too little stock as well as too much. If you are consistently underestimating how much stock you need for a certain item, you could be paying over the odds for each order compared to if you place a bulk order.
This is where economies of scale come into play and even though the mindset is clearly to try and keep as much cash in the bank in the short term, there is also an argument for playing the long game on ordering, if it ultimately saves you money.
Ordering large quantities of an item should always open up the opportunity to demand a steeper discount. Work out how much stock you need to see you through for the next 2-3 months and if you can negotiate a better price for a bulk order rather than three separate monthly orders, that could ultimately save you money and improve your cash flow going forward.
Rule of thumb tip
If you are trying to calculate whether it is better to buy in bulk or not, work out whether the savings you will achieve are greater than the cost of the money (interest on loans). If you are still making cost savings after deducting borrowing costs, you have your answer on which is the right thing to do.
Inventory is the key
Ordering stock on an ad hoc basis and not having a clear idea of what you already have is wasteful and is a strategy that could easily come back to haunt your cash flow.
Work on creating an effective inventory management system so that you always know at any one time, how much stock and cash you have got tied up. Once you know that information it is much easier to make informed and savvy purchasing decisions.
If you want to retain total control over your cash flow you will need to have control over your ordering process and stock control.
Finley James works as a retail buyer, a role has been in for many years. He is able to share some top tips with business owners when it comes to stock management, seasonal buying and suppliers.