Carrying stock for too long means full shelves but an empty bank account. Similarly, if you’re a service provider and are taking forever to bill for your services, then you’re carrying too much stock in the form of work in progress. Consider that work in progress as a form of virtual stock.
You can calculate your ‘stock turn’ by taking your cost of sales from your annual financial statements and dividing it by your average inventory. Most clients need some help from us to work that out, so don’t worry if you don’t understand first up; we’ll show you. Expected stock turn rates vary from industry to industry so it’s important you don’t compare your stock turn to other types of businesses.
The key is to convert stock to cash faster. Ask yourself these five questions, just for starters:
- Do you have a stocking strategy? Do you determine safety stock, desired stock levels, and re-order points for each stock category?
- What software do you use to measure how much stock you have on hand at any given point in time?
- What clear policies do you have to ensure you have no slow moving stock items?
- How much is stock shrinkage (theft, damage) costing your business?
- Do you have a formal stock ordering system so that stock levels don’t blow out?
These are just some of the ways to improve your stock turn. We can’t do justice to the detail in this short article, so if you think your stock levels might be stifling cashflow in your business, make a time to see us. We’ll show you how much cash you can unlock in your business by setting some SMART goals and putting in place a simple action plan.
How we can help
Profitable businesses can experience extreme cashflow problems, just as unprofitable businesses can survive if they’re well-funded.
Understanding the difference between profit and cash and your business’s Cash Conversion Cycle is essential for your business to be viable in the long-term.
Contact us today – the sooner we complete a Cashflow Forecast for you, the sooner we can work together to agree strategies for improvement.