Thursday, December 5, 2019

Inventory is money


broken bottles at liquor store after earthquake in California
broken bottles at liquor store after California earthquake; courtesy LA Times

It’s easy to get waylaid in your retail business by the perception that all those items lying around are just stuff.  In reality, you paid for that stuff and expected to make a profit on it.  By overlooking this fact, a small business loses control of what they have and how much money they’re making - or losing.

From the liquor industry I learned that if ten cases of beer go missing each quarter, management will shrug it off - it’s breakage; it was priced wrong; we had a few minor thefts not worth reporting.  But if the same amount of cash goes missing, everyone starts rummaging in other people's desks looking for a stash of twenties.  Why are these treated differently? - in a business sense, they’re exactly the same thing.

Anytime a business discards inventory without adequate reporting - damaged on shelf, received not in sellable condition, customer returns - is a monetary loss.  Don't do it!  Sad as it is to face losing money, inventory accounting is a crucial - indeed, core - process that must be done to run a tight ship.  If anything, losing inventory is actually more expensive than losing cash, for it includes the real costs of ordering, receiving, stocking, and counting the stuff.

I'll go so far as to state that the knowledge of what’s present and what’s sold or lost is the difference between a well-run business and an operation that only pretends to be playing shop.

Let’s agree on these two rules, then:

1. Inventory is cash.

2. Knowledge about what we have and what we don’t is key to solvency.

Inventory management is my area of expertise.  Call me if you want to have a firmer grasp of what you have and what you don’t.  I can show you how.

- JC2

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