Whether you’re just starting out with your own small business or you’ve grown your company into something much larger, it’s important that you’re able to accurately predict how much of your product you’ll need to have for a certain amount of time. While you might not yet realize what the negative effects can be of having too much inventory at one single time, you’ll quickly find that this presents a lot of problems if you happen to find yourself in this predicament. So to help encourage you to be careful with the amount of inventory you have, here are three reasons why you shouldn’t keep more inventory in stock or on-hand than you can reasonably sell in a quick turnaround time.
Your Cash Flow Will Be Reduced
To build up your inventory, you have to pay for whatever materials or products that you’re going to be selling. However, until you’ve sold from your inventory, all that money you’ve invested in just sitting there. But for your business to continue functioning, you have to have enough liquid cash so you can pay for the expenses of your business. So if you’ve invested all your money in inventory but don’t have the funds to pay your bills, Devra Gartenstein, a contributor to Chron Small Business, shares that you could find yourself in a very sticky situation that puts your entire company at risk. Because of this, you should never put all your cash into your inventory so as to put yourself at a financial disadvantage.
Increased Spend Of Space And Money For Storage
When you have items sitting in your inventory, waiting to be sold, you have to house those products somewhere. And while you might not think this is a big issue, transporting and storing materials can get very expensive. Even if you have storage space at your own facility, you’re having to use that space for a static purpose. And if you don’t have your own storage space, Gary Marion, a contributor to The Balance Small Business, shares that even shipping your items around your own town to be stored can drastically cut into your profit margins.
Aging Your Product Out Of Usability
Depending on the type of product you’re selling, it could lose a lot of its quality while sitting in your inventory and waiting to be sold. According to Leigh Richards, inventory in industries such as food service and fashion are especially vulnerable to this. However, almost any product can lose some of its value when sitting on a shelf, so it’s important that you do your best not to let it sit for too long.
To ensure you don’t lose money while having too much inventory, try to do everything in your power to accurately produce the right amount of product for your business.