28 Feb Improve Your Cash Flow with Inventory Management Software
Growing an online business is incredibly difficult without healthy cash flow. If customers / sales channels are slow to pay, a seller can’t pay their suppliers and employees. Without paying suppliers and employees, there’s no inventory and no people to operate the business.
A business should always be striving for positive operational cash flow. With greater inflows than outflows, a company has extra resources to grow and expand. The key to achieving this healthy cash flow — inventory management.
To help sellers improve their cash flow, we put together this guide to help you improve your inventory management. By maximizing your inventory’s performance with these tips, your online business will have a greater net cash flow to grow.
What Is Healthy Cash Flow?
Cash flow is the amount of money being transferred into and out of a business. It’s usually calculated and presented on a budget sheet that identifies a company’s inflow and expenditures.
A healthy cash flow is positive— more money is flowing into the business than flowing out of it. When a business generates more cash than it spends, it can grow its net cash flow over time and use that surplus to scale its operations.
How Inventory Affects Your Cash Flow
The cash flow cycle depends on your inventory. You spend the cash you have to buy your supply, and that inventory turns back into cash when it sells.
Consequently, your cash flow is easily reduced by poor inventory management. Specifically, issues with stocking your supply and customer orders can lead to fewer sales which hurts your cash flow.
Stocking Your Supply
A poor understanding of your inventory leads to miscalculating your supply. You haven’t properly tracked how often you sell your inventory, so you don’t know how many products you need to stock.
With a supply that’s too high, your cash flow is hurt by increasing expenditures. Your cost of goods goes up because you are buying and storing more inventory. At the same time, the demand for your goods isn’t high enough to satisfy the supply amount you’ve purchased.
For example, let’s say you buy thirty t-shirts at $10 a piece for $300. You want to sell each at $20, but there’s only enough demand to sell ten t-shirts. You invested too much in your inventory, and you lose $100.
With a supply that’s too low, your cash flow is hurt by decreasing revenue. If you only have a small amount of supply to sell, you only generate a small amount of revenue.
Let’s say you buy six t-shirts to sell. You manage to sell your entire supply, but you missed out on a larger profit by failing to meet the demand for ten t-shirts.
Without properly tracking your inventory, you don’t know how much of your products will sell or how much to stock. Your cash flow is reduced by spending either too much on inventory or earning too little from sales.