Limit your total inventory to 1.5X your cost of sales [Hack #041]

Give your bank account a breather

We seem to always be cash strapped in our industry. Every penny is accounted for and we often feel limited in what we can do by our cash positions. Then why is that so many of you are keeping way too much inventory on hand? This is cash that is literally trapped until you turn into sales.

Here’s the math. If you do $25,000/week in sales with a gross cost of goods sold of 25%, you are using $6,250 in product weekly. When you do inventory, how much is the total value of product you have on-hand? If it’s more than $10,000 then you are holding that cash hostage.

To do this, you must have a very solid handle on ordering and inventory depletion. The upsides include freeing that inventory to improve your cash flow, you have less to count while doing inventory and you will improve inventory because there is less product to manage.

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