Holding too much stock regardless of what industry you are in, can have its pitfalls. In busy times it can be beneficial to buy more stock than you require if you know you will be using it or can sell it later. You may even have that buying power when you purchase more or have that reassurance that you can return what you don’t use to the supplier. Having that balance of holding enough supplies is essential and we can help you plan and prepare forecasts if you need help in this area. Holding too much stock on hand can ultimately cost you if you can’t use it in time or pass it on.
5 pitfalls of having too much stock on hand:
- Your cashflow is reduced. If your money is tied up in stock or inventory, you’ll have less to cover your everyday expenses and other bills. In turn, if you need cashflow you may end up having to borrow money which in turn will cost you more to pay back.
- Customer demands can shift quickly. Is the stock you have on hand going to expire? Does it have a use-by date? Is it a trend that could be replaced tomorrow? Will your customer want this particular item in 3, 6, or 9 months’ time?
- Storage space. This is an obvious one. If the more stock you hold, the more space you need to store it. This can lead to you not having the space to hold what you actually need in the present time. You need to determine if you can easily manage perishables or keep track of dates. It’s also wise to look at the time it is taking to manage this. If it’s using additional labour hours it can easily cancel out the savings you may have got with your purchase.
- Obsolete stock. Is the stock you’re holding likely to go obsolete soon? If you are holding excess inventory, you can run the risk of this product not working with new or updated trends and processes.
- Your company’s flexibility will decrease: Having the right amount of inventory means your company can remain flexible to changes in the market. Having too much of something could mean your business will struggle to adapt to customer demand and market changes.
Careful planning is one of the fundamentals of running a successful business. Whether you are self-employed, a tradesperson, or a small business with many employees, business planning is one of Engine Room’s specialities. Speak to one of our team today to help remove the stress. We can recommend some inventory management tools or software and help to implement a system for you.
To start you off, download our free guide – The Business of Planning and call us to make a time that suits you.
For more information on cashflow, catch up on some of our blogs on Business Growth Strategies here.
This article and guide from business.govt.nz has some valuable information on ordering at the right time at the right quantity.