How inventory management and business finances are connected
Business owners are constantly being confronted by a long list of demands that require their time and attention. There are many different functions that make up owning and running a business. While some business owners think of these functions as separate entities others know that many overlap. This is the case when it comes to inventory management and the finances of yourbusiness. The reality is that if you fail to manage one then the other will suffer. Savvy business owners will understand the connection between these two business functions and use that information to better manage their business.Here is what you need to know about how inventory management and business finances are connected-
- Inventory takes up a lot of cash-Many business owners overlook the fact that inventory is cash that is tied up. Whatever amount of inventory that you have is the amount of cash that you have sitting in your warehouse, store, or any other location. Business owners should not look at inventory as merchandise or materials but rather as cash that is being used. When a business owner has this type of financial mindset he or she is much more likely to effectively manage the inventory for their business. When your inventory is managed effectively you will have a corresponding effect on the finances of your business.
- To much inventory just wastes cash-Because of the true nature of inventory (cash), it is crucial that business owners do all they can to balance their inventory. Many business owners worry extensively about not having enough inventory. They overbuy and fill their warehouse or other facilities to overflowing. Keep in mind that inventory is not just cash but also a risk with your cash. You will need to balance your inventory so that you not only do not have to much inventory but that you are able to get the real value out of the inventory that you do have. This is a crucial part of inventory management. When you are able to do this you are not jeopardizing your cash flow which makes the state of your business finances much healthier.
- Slow moving or dead inventory is money lost-Many times business owners do not realize the true state of their inventory. Inventory management is a dynamic process. Some of your inventory at any given time may fall into one of three different categories. These three categories are: relevant, slow moving, or dead inventory. You will need to always have an idea of how much inventory that you have in each category. Relevant inventory is inventory that is selling at the top price and getting the best value. This is the inventory that is affecting your business finances in the most positive way. Slow moving inventory is possibly nearing the end of the product lifecycle. You are not getting as much money for this type of inventory. Finally, dead inventory is inventory that is not moving at all and is costing you money. The last two types of inventory need to be dealt with and minimized whenever possible since they have the greatest negative effect on your the finance of your business.
- Effective inventory management improves business finances-There is no getting around the fact that when your inventory is managed in the most effective way possible it works to improve your business finances. As a business owner it will be crucial to have procedures in place that will help you to manage your inventory in the most proactive and efficient manner since this will be a crucial part of whether or not your business succeeds for the long term.