Your business financials — where they stand currently and where they might be going next year — are incredibly important. Obviously, sales and expenses play enormous roles in the strength of your position. But a fundamental and often-overlooked way of making your cash flow statement shine is to minimize inventory or services so you have just enough to fulfill demand.
Carrying too much inventory can devastate a budget as the value of the surplus items drops throughout the year. In turn, your financial statements simply won’t look as good as they could. Taking stock and perhaps cutting back on excess inventory does the following:
- Reduces interest and storage costs
- Improves your ability to prevent fraud and theft, and
- Increases your capacity to track what’s in stock.
One item to perhaps budget for here: upgraded inventory tracking and ordering software. Newer applications can help you better forecast demand, minimize overstocking, and even share data with suppliers to improve accuracy and efficiency.
If yours is a more service-oriented business, you can apply a similar approach. Check into whether you’re “overstocking” on services that just aren’t adding enough revenue to the bottom line. Keeping infrastructure and, yes, even employees in place that aren’t improving profitability is much like leaving items on the shelves that aren’t selling.
Making improvements may require some tough calls. You might have long-time customers to whom you provide certain services that just aren’t substantially profitable anymore. If it’s getting to the point where your company might start losing money on these customers, you may have to discontinue the services and sacrifice their business.
You can ease difficult transitions like this by referring customers to another, reputable service provider. Meanwhile, of course, your business should be looking to either find new service areas to generate revenue or expand existing services.
Brightening the future
A variety of threats can cast a dark shadow on your company’s financial statements. Keeping your inventory or service selection in tip-top shape can help ensure that the numbers — and your business’s future — look bright.
For additional questions on inventory management contact Randy Feld, CPA at firstname.lastname@example.org or 952.858.5588