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For many retailers and wholesalers, inventory tends to tie upwards to half of a businesses free capital. Unfortunately with the economy today, holding a large inventory can be quite the burden. It should be understood that the larger the inventory, the larger the costs are to own and maintain it. The more money you have tied up in inventory, the more risks you face if that inventory doesn’t sell as planned. Today, we will discuss the hidden costs associated with inventory, and why sitting on excess inventory can be harm your bottom line.

Businesses always expect to see their inventory to move quickly, but unfortunately things do not always go as planned. It should be understood that when the economy gets tight, consumer spending gets tight. When consumer spending gets tight, distributors, wholesalers, and retailers get stuck with slow moving inventory. Dismally, slow inventory is no different than excess inventory or closeouts; they all are exhausting your company’s cash flow, rather than creating new use-able cash.

Let’s see what your stagnant inventory is costing you…

Interest

How did you pay for your inventory? Unfortunately, most people don’t have the cash available to buy their inventory outright and are forced to borrow. If this inventory is not selling quick enough or bringing in any sort of revenue, then your costs are snowballing as your interest continues to grow. At what point will you pay this off, and with what money? At some point, you are going to need to cut your losses, but how long are you going to wait?

Warehousing and Storage

Businesses always seem to forget to calculate storage costs. How much room does your inventory take up? How much do you pay for the space the inventory sits in? How much do you pay your employees to handle the freight? Your average warehouse costs about $4.50 per square foot, you figure it out. Also, think of the space that could be warehousing new inventory but is unavailable due to your stagnant inventory.

Depreciation

Depreciation is perhaps the most obvious one of your costs. Are your goods that are not selling, worth what they were 6 months ago? Depending on the product, most likely not. Typically, the longer you sit on your goods, the more value they lose.

Time

If your inventory isn’t selling as planned, you’re most likely spending a lot of time stressing and grieving. Why beat a dead horse? Liquidate your excess inventory while it still has some value left.

In the end, it should be clear that excess inventory can be a business killer if it is not taken care of in a timely manner. It stifles a business’s productivity from top to bottom. Inventory follows a product life cycle; it needs to be constantly moving. The less movement in your inventory, the more risk your business is facing. Unfortunately we’re out of time today, but stay tuned! Next we will describe how to get the most for your excess inventory.

Interested in liquidating your excess inventory? For a FREE liquidation quote, contact SELLinventory.com: Buyers of Excess Inventory.

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