Managing Inventory to Improve Cash Flow
Cash flow is the movement of money into or out of a business. It is one of the most important metrics when running your business. Without a healthy cash flow, growing an Amazon business can be incredibly difficult. It can affect your payments to suppliers and employees, as well as, impact the quality of your inventory. On the other hand, a steady cash flow allows you to have extra resources to grow and expand.
How does inventory affects your cash flow?
In most situations, your cash flow depends on your inventory. You spend money to buy goods for your inventory, and when those goods are sold, they bring back the money you spent.
On the contrary, your cash flow diminishes when your inventory is mismanaged. Problems with overstocking and less customer orders can lead to reduced sales, which then damages your cash flow.
To avoid hurting your cash flow and facing financial casualties in your business, here are different ways on how to manage you inventory to improve cash flow.
Keep track of your inventory
By tracking your inventory, you become more aware of its condition and status. You know when and how many products you need to stock. You also know how much of your products will sell. A good understanding of your inventory allows you to come up with an immediate solution when a problem arises. Thus, you can easily avoid hurting your cash flow.
Avoid buying products that do not sell
Having an accurate picture of your inventory enables you to easily process the amount of orders you can fill, and therefore prevents you from overstocking your inventory. Buying items that are least likely to generate income can only harm your cash flow. This is because you’re investing on products that don’t yield financial returns. That said, it would be a good idea to order small amounts of supply so you have room to adjust your inventory if demand changes.
Invest a minimal amount of capital
Whether or not you’re new in the Amazon marketplace, investing a small capital for your business is a wise move when it comes to improving cash flows. This is because a low working capital presents lower risks than when you allocate a huge amount of money. However, this doesn’t immediately guarantee success in your business. The trick when raising business capital, is having a detailed and thorough business plan. Determine where exactly you are today, where you want to be in the future, what challenges you may face, and how you are going to overcome them.
Understand your order issues
Understanding past order problems puts you at a position to find out what went wrong with your inventory management and the reason behind it. Once you get at the root cause, finding a solution to overcome it becomes attainable. Some of the key issues you can track might include the orders that were cancelled, orders that didn’t arrive on time, and orders with long turn around times. Then, identify what led to these issues and how you can avoid them in the future.
Adopt different kinds of pricing strategies
Another good way to keep a healthy cash flow is by implementing different pricing techniques for your products, and then identify which one works well. Good pricing strategy allows you target the price point at which you can maximize the profits on your product sales. When trying out various pricing strategies, make sure that the price is affordable for you customers while maintaining a sense of competitiveness.
A great way to help you set up a good pricing strategy is by using an algorithmic repricing tool such as SellerMobile. This way, you don’t have to manually track your competitors’ prices every single time. The tool will handle the tedious work for you, monitoring price changes in real-time and even alter the prices so you have better chances of selling and making a profit. This will eventually improve your cash flow.