A lot of people who manage retail stores don’t really realize the big issue with keeping extra stock with you. Some of them simply think being overstocked is a good thing as that would mean that you would never have a shortage but this is a misconception. Keeping it with you comes with a lot of issues and expenses. Though the course of this article I will attempt to show you some of the problems that you may run into if you aren’t too careful.
One of the most obvious reasons that you should improve small business cash flow is the fact that it is going to take up a lot of space to stock. Keep in mind that this is space you could use to store a more trending or fast moving item. So there is a big opportunity cost in you taking up a lot of space for something you don’t really need. I mean think about it for bit. Some items can be quite bulky and larger items take time to be sold. By having extra you will be using the storage you could have used for a lot of smaller more fast moving items. This in turn would have brought you a lot more profits. So this is something you need to seriously think about.
You must also understand that amount of insurance you pay would only increase if you keep a big inventory. You would be paying insurance for goods that you wouldn’t really even need. This in turn affects your financial status as well. By having extra you would be spending money you could have used to buy other goods as mentioned above. If you are taking a loan to buy your stock this would mean that you would be falling into debt with no clear plan of coming out of it anytime soon.
What many retail store owners also do is to buy seasonal clothing in bulk and store them. What one must understand is that is reliant on a certain season. If you do this once the season is over you are likely going to have to sell excess stock at a much discounted price. This would mean that you would not be making a profit from the investment that you made. This would not look good on your balance sheet.
So all in all it is important that you are always aware of what is there in your inventory and you ensure that there is no excess. So at least once a week either physically check the stock or have software that keeps track of your inventory. If you have extra do not be hasty to sell it at a discount price. You could be able to sell them to another shop or sell it to a wholesale seller etc. in conclusion always keep a sharp eye out on your inventory list.