Inventory and Cash Flow Management

In the planning stage of business, things always look ideal. You set things out and you hope that A + B = C because that how it always is. Unfortunately, once the business opens and “reality” strikes, you will realize that things do not always go as planned. Expenses come and they will keep coming, but there is often no way to guarantee that income will flow as fast as money is exiting the door.

In some businesses, there is an issue between inventory and cash flow management because you need to refill the inventory to keep the business alive, but if the income is not enough, it will not all balance out. Like a seesaw, the expenses will weigh heavily and the income will be light—so what can be done?

• Learning basics of bookkeeping and accounting. This does not exactly ask you to be an expert of thing but if you have no knowledge of this, then you are going the wrong way. There are classes and short courses that you can attend for these. It will cost you some money, but this will be investments that you will surely gain from, so they are worth taking.

• Create a budget for your business. This is true for personal accounts and this is true for business, as well. You should set a budget for yourself and be responsible enough to keep to this budget. When you itemize your expenses and allot exact amounts for certain things, you spend money on paper and account for it, even before you actually spend it. This keeps you from asking: “Where did the money go?”. Also, when you know how much money you need and have, you can easily balance your income and make it fit. You need to understand how your balance sheet works so you know where everything is going.

• Know how to handle your money. Say you have $10000 worth of inventory and you are able to sell it all at 100% mark up. This should bring you $20000 at the end of the month. From what you are able to earn, you should immediately take out your fixed expenses such as rent, utilities, insurance and so forth; and then stock up your inventory as you usually would—and keeping the rest of the money as savings. Inasmuch as you can, you have to be diligent enough to not spend money that you do not have because this is not good for business.

• Is your business making money? This is the hardest question to ask when in business, but it needs to be set out there. Is your business making money or are you just kidding yourself? If you are running out of cash every month then that means you are not selling enough stock to cover all your expenses—or you could be earning enough but you are spending too much trying to fill your inventory. Another thing to look at is whether or not someone is taking money out that is not accounted for. If you balance your books, you should be able to detect any discrepancy and make changes where it is needed.

• Cut down on your expenses. If your business is not making enough money for your expenses, you need to cut down on things you are spending for. There are fixed expenses you cannot touch, but there are some things that you can control and one of is wages. Are you paying too much for people in your business? If you are, then you may want to cut down and man things either on your own or with a smaller group of people. Study your expenses and find other ways to save money and make it happen.

This is all very tricky. Money makes the business run, so you have to keep money running and coming if you want to continue. Unfortunately so, it is not something that you can guarantee and when you meet a dead end, you begin to think of taking up a loan.

Loans are an even trickier thing. There is a right time to take up loans and when the business is going backward, it is not a good idea for you to take up a loan because it will even bring you deeper in debt. Only get a loan when you know what you are doing and when cash flow is positive.