It’s challenging to grow a business without a healthy cash flow. Especially if you have customers or sales channels that are slow to pay, you will be required to pay your own suppliers and employees regardless of whether your customers have paid or not.
One of the tools available to a business to achieve a good cash flow is inventory management. Managing your stock to be able to fulfil orders without holding an excessive amount of inventory allows you to keep your finances liquid.
In this article, we are going to be exploring stock management and cash flow and discussing the role of inventory management software. If it’s not something you’ve spent a lot of time thinking about, it might be worth delving a little deeper, because, for many companies, it directly contributes to their ability to grow as a business.
What Is Healthy Cash Flow?
“Cash flow is the amount of money being transferred in and out of a business. It’s usually calculated and presented on a budget sheet that identifies a company’s inflow and expenditures.”
Simply put, when you have more money flowing into your business than flowing out, you have positive cash flow. This should always be an objective for most businesses because by accumulating the net cash flow surplus, you have the resources to scale operations.
Naturally, there is more to finance than just cash flow. You also have to assess a company’s debt, profitability, and other factors to ensure the financial stability of your business. However, if you are ever looking for a snapshot of your financial position as a business, your cash flow is a really good indicator.
How Inventory Affects Your Cash Flow
Most traditional businesses follow a similar model. They buy inventory, which they then hold as stock whilst they try to sell it. When the inventory gets sold, it converts that stock into cash, giving the company the resources to purchase more inventory and repeat the cycle.
However, buying too much stock can impact your cash flow and worse still, it can lead to waste.
Stocking your supply
Poor visibility of inventory can often lead to miscalculating supply. If you don’t have the ability to properly track the supply and demand of your inventory, you can’t predict how much stock you need to hold at any one time. These stocking issues can become even more prevalent if you are in a seasonal industry where sales can swing drastically depending on the time of year.
For example, without accurate stock reporting and analysis, if your predicted supply is significantly too high, your cash flow can be damaged through increasing expenditures. Your cost of goods increase, as well as the costs associated with carrying your inventory and the demand for your goods, isn’t high enough to satisfy the supply amount you’ve purchased.
In contrast, if your predicted supply is too low, decreasing revenue can also dent your cash flow. If you only have a small amount of stock to sell, you might not be able to keep up with demand. In most industries, if you don’t have the stock available to supply to your customers, they will be buying from your competitors.
Inventory Tips to Improve Your Cash Flow
The ability to control your cash flow demands forward-thinking. The best way to achieve this is to employ technology, which can track your inventory trends helping to predict the flow of your cash and avoid costly mistakes.
Track your Inventory Trends
Keeping meticulous records of the quantity of products ordered and sold helps your business to forecast demand and supply. Bit Systems inventory management software simplifies inventory tracking to provide insights into whether you are overstocking or understocking. In creating greater visibility, you can better regulate orders and continually meet customer demand.
- Continual tracking allows you to measure seasonal changes.
- Adjust supply orders to accommodate demand fluctuations.
In precisely measuring inventory flow, you will be better able to match your supply to the demand. You maximise your revenue by meeting customer demand and not tying up cash in additional stock.
Summary – cash flow management
Managing your cash flow is essential for any business wanting to scale for two primary reasons. Firstly, available capital provides opportunities for companies to expand into new areas and scale their operations. Secondly, by having visibility over cash flow and stock quantities, you are better able to meet the consumer’s demand and predict future demand patterns. The absence of technology would make the task of managing inventory extremely labour intensive and leave a huge margin for human error, neither of which are useful to a growing company. Bit Inventory management software automates stock control to enable your business to grow through improved cash flow.