subject: Surplus Inventory: Your Business Growth On Hold [print this page] Many businesses experience the burden of keeping inventories as their most expensive investment. It is a common notion that many businesses have tied half and even more of its total capital in their inventories. However, with todays current economic trend, holding too much and excess inventory proved to be costly for many companies. Inventories also mean cost and risk. Larger inventories mean larger cost and risks. Many companies are still in denial when it comes to the risks they face with surplus inventories. But knowing more about how these excess inventories can cost you everyday will help you make better decisions at how you can dispose of them without sacrificing more.
For many businesses, realizing that their inventories are no longer moving as quickly as they expect can be quite alarming. Once the economy tightens, consumer spending also tightens which results to slow moving and excess inventory. You have to realize that slow moving, overstocked or surplus and excess inventory means one and the same an exhaustion of companys cash flow. Instead of creating cash for new investments, you are stuck with a load of items that became hard to sell and this causes a huge dent in your business.
The Cost of Your Excess Inventory
Not all businesses have available cash to pay for their inventories. Many are forced to borrow or loan up for their capital and if they are not selling their goods fast enough, then the business suffers as the interest for the loans continues to grow. You need to pay this off soon and prevent more interest from incurring, but with a slow moving inventory, you will have a hard time bring in revenues to roll your business. Soon you need to find ways to cut your losses and dispose of your surplus inventory to make good money out of it.
Aside from your loans, you must also consider the cost of keeping your excess inventories. The costs incurred will depend upon the warehouse space and the time you need to keep those items. You may need a couple of grand for a year of keeping your stocks in a warehouse plus handling fee of a couple of hundreds depending on the number of pallets you have. Your excess inventory that just sits on these warehouses may also be stopping you from purchasing newer and better stocks which can bring in revenues and profits.
Depreciation and The Business Killer
Among the most obvious costs that come with excess inventory is depreciation. The goods you started stocking 6 months ago will not be worth what they were today. The longer you keep your good, the lesser value they will have when you sell them out. Excess inventory is a real business killer. You will constantly think about what to do with them and distract your focus. More than the stress and worry that your surplus inventory brings, it is also holding up your capital which could have been used for newer investment.
It should be well understood that excess inventory is a business killer especially if you overlook it for a time. It minimizes your business potential and stagnates your profit gaining. Your inventory should be kept moving and rolling.
