Inventory equals cash?

Just few weeks ago I didn’t know the importance of forecasting until recently I learned how important it is to forecast in any business. I never thought of inventory as being cash I just thought of it as a bunch of stuff, and materials. I found this article in Forbes magazine that talks about how inventory is your cash. It discuses how you are supposed to treat your inventory, and how you are supposed to track all your inventory so that you can gain more cash then losing cash and better business that will make your consumers happy.

Having a business is not just about buying and selling you have to pay attention to what’s coming in and what’s going out and in order to do that you have to track everything. My family has a business and when they are doing their orders they do forecast everything. First time I saw them I didn’t know what they were doing until recently when I learned about it more. It’s not about having a lot of inventory in your business you have to see how much was sold, how much you have in hands, and how much you think will sell that’s what you bring in. By tracking and forecasting your inventory it will save you a lot of money because you don’t extra inventory sitting in stock that will not sell. The bigger the business you have the harder it gets to keep track of your inventory so that’s why everything has to be monitored so save you money.

As a business owner you might think you are keeping costs down, but without using the right steps it will get very difficult so you must track the entire inventory to make the business grow. For example, if you own a business that sells fresh products you want to make sure that you get new products in everyday you don’t want to order to much and it will stay there consumers won’t be interested in shopping there anymore because they don’t see fresh products. By forecasting and mentoring everything that’s coming in and going out will help you get fresh products everyday and will help your sells grow and be a successful business. This will also help you with product life cycle if a product was selling a lot and then it slows down you don’t want to keep ordering it for your inventory and it won’t sell. There are many systems to help a businessperson to track and forecast their products. There are special computers that will help just putting the information into the system and it will automatically tell you everything that you have and need in your inventory.

What do you think about inventory equaling cash?  Do you think forecasting will help in having better successful business?

 

Source: http://www.forbes.com/sites/davidkwilliams/2012/10/13/your-inventory-is-your-cash-handle-with-care/

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5 thoughts on “Inventory equals cash?

  1. I really like this article about forecasting and the importance of keeping track of inventory going both in and out of a business. My family owns and operates two chiropractic clinics and we have to keep track daily of the materials and products that come in and out of our facilities. If we miscalculate how much we need of a product or purchase not enough it can cost the company a lot of money. It is really important to make sure that you are keeping track of money coming in and out of the company. I definitely think forecasting does help companies because it gives them an idea of how much or how little of something that they may need.

  2. It is an interesting concept of the different ‘forms’ of inventory that you have on hand. Your thoughts regarding the importance of tracking your inventory of all stages: forecasting, production, being on hand, sold, and how much of your inventory is converted into profits or losses. Inventory carrying costs can accumulate and become quite expensive. When a business has an excess of goods on hand, it makes sense why this situation is that their ‘cash is tied up in inventory.’
    Cash flow is important to consider in every business. Your example of fresh goods is interesting. It places more importance on forecasting, producing, and tracking inventory when goods can ‘expire.’ In essence, if your goods expire and are not able to sell them, it is wasted potential cash. This can be seen as a ‘cost’ in some way because it took cash or a type of financing to produce the goods. Without a return on it, it only used up potential cash profits.

  3. The thought of inventory being cash is interesting. And I do agree with you. However, inventory is not as liquid as cash as you’ve mentioned when you need money for something else that is “hot” but your cash is tied up in the inventory of something that isn’t “hot.” So forecasting and continuing to make changes to get a close or almost close to actual demand will make your inventory equals cash. So I guess it’s really depend on the business and the owner of how he/she would do, but forecasting is an important and much needed concept when doing a business.

    Another thing with inventory that is quite important is the warehousing/storage space issue. If you order too much you have to have enough space to safeguard these items. For examples, your fresh goods, you will need enough refrigerative space to hold them or else they will be spoilt very quickly. However, if you order too much so as to have enough space, you might not meet demand of your customers and will drive them away. So forecasting demand and keeping a record of what goes in and out will help a business owner improves his/her store and meet customers’ demand (if done right).

  4. This was a great read. Like you, I always thought of inventory as materials rather than cash. I always knew that business management should track inventory but when you look at inventory in the perspective of cash, you pay more attention to it. Using your fresh produce example, I used to work at a yogurt shop called Yogen Fruz. The fruits are always freshly cut and are thrown away when the fruits go bad. One of the fruits that I have seen thrown in the trash quite frequently are bananas. A few bananas may not cost much but when you sum up the money wasted through the entire year or if you have a larger business, the cost can be pretty high. I definitely believe that forecasting will help in having a more successful business and increase profits. Forecasting can help you understand what consumer wants and do not want.

  5. Inventory is cash and it is very important for any business to keep track of their inventory. I work in Macy’s shoe department and we use a PDA system when assisting customers. I find this system to be wonderful because it save me time in locating shoes for my customers, for example, If a customer brings me a display shoe that he or she wants to purchase I would use my PDA to scan the barcode underneath the shoe. Then I would select the size and color of the shoe desired and the PDA would indicate if we have the shoes in store. Thus, keeping an accurate account of a business’s inventory can save time as well as money.

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