Posts Tagged ‘inventory’

5 Signs Your Business is in Trouble

May 3, 2011

by Doug Smith, President, The Woodhaven Group, LLC

Here are 5 critical early stage signs that your company may be in trouble.  They all have to do with poor cash flow. If you are experiencing 1 or more of these,  as owner or CEO, you must act immediately:

  1. Vendors are reducing your credit limit:  This may be due to failure to pay on time, a poor credit report, reduction in the amount ordered or simply rumors about your company from other suppliers.  Are they asking for payment before they will ship the next order to you?
  2. Top people leaving for other companies:  When a company is in trouble the weakest performers will be the last to leave.  The top people will notice problems and find reasons to change companies.  Be concerned if this starts happening as the top people in your company will be talking to each other.
  3. Your accounts receivable balance is increasing:  This is the cash your company needs to live on.  If sales are not increasing but the accounts receivable balance is going up then you need to find out why and fix it.  Are there quality problems?  Are invoices not being mailed on time?  Do you have a couple large customers in financial trouble?  Is anyone assigned to work slow payers?
  4. Inventory and accounts payable are increasing but sales are down:  Is someone ordering inventory as if there is a big sales increase occurring?  Who is approving purchase orders?  Get with key suppliers and see if you can return inventory and get a credit off the next invoice.
  5. Gross margin is dropping:  This is cash not available for the company to use.  Is there a quality problem requiring replenishment of goods sold?  Was there a price increase from a supplier that was not passed on?  Is the sales department giving price breaks just to get orders?  Are competitors offering a better product and sales is cutting price to compete?

Management must maintain a dashboard of key indicators that are monitored daily or weekly.  This will allow the management team to identify problems early on and take action.


Use This Easy And Proven Tip To Supercharge Sales

July 19, 2010

by Doug Smith, President, The Woodhaven Group

Are you a retailer?  Worried about whether you will  have enough cash flow from your business to buy inventory for the all important Christmas season?

Do this now with the fall merchandise coming into your stores and create the cash needed for fourth quarter. 

Hold a one day private pre-season Fall sale.

Follow these proven tips to make it a huge success:

  1. Send out a personalized letter only to your customer’s announcing that the sale will be for one day only.  Do not extend beyond this one day.  It creates a sense of urgency.
  2. Discount 40% on any merchandise purchased on this one day only.  This will especially work if you are a retailer that does not have your inventory on sale 24/7.
  3. Include in the letter a coupon at the bottom that must physically be presented at the time of purchase.
  4. Do not email this announcement.  Sometimes it is better to get something in hand that has to be brought to the store.  Save the online coupons for another time.
  5. If you sell apparel, offer free alterations for anything bought on this one day only.
  6. Personally sign the letter with your direct phone number listed.  Advise them that if they are going to be out-of-town that day to call and you will ring up the sale for them.
  7. No holds for a later decision.  At the end of this day the sale is over.
  8. Have all sales staff call their personal accounts and set an appointment to meet their customers in the store. Again, this creates a sense of urgency and shows that the sales staff cares about their customers.   
  9. Make the day a major in store event.  Maybe have wine, appetizers, live music. You get the idea.   

This sale can turn into an annual event that only you and your regular customers will know about.  It’s your own little secret. About the third year you do this event you will see some customers taking a vacation day from work just to be there early when the doors open.

A side benefit will be that you can get an early read on what  styles, colors, and fabrics the shopper is really going to be interested in for this fall and holiday season.  Now you have direction on what to buy for November delivery.

Also, don’t be surprised when your customer comes back  the week after the sale and pays full price for that item she chose not to buy the day of the sale.

Oh!……and one other benefit.  You have just supercharged your cash flow early in the shopping season.

Look Up! Look Down! An Inventory Secret to Save Cash

April 24, 2010

by Doug Smith, President, The Woodhaven Group

The ability of a company to successfully manage levels of inventory of everything from raw materials to key component parts to everyday supplies can be the difference between a profitable and positive cash flow business versus a cash strapped company on the brink of going under.

There are many inventory management software packages and inventory management models to buy and keep inventories in alignment.

One of the oldest forms of inventory control is the Economic Order Quantity developed in the early 20th century.  Many other successful forms are in use today like ABC analysis and Vendor Managed Inventory.  The latter is often used by big box stores like Wal-Mart.  The automotive companies have been particularly successful over the years with Just In Time inventory management.  In my opinion, effective supply chain management has been one of the most important drivers of productivity and growth in America over the last 20 years.

The smaller business, however, has historically not been as sophisticated in assuring proper inventory levels are maintained regardless of the type of business. 

Most small and medium sized companies either have a home grown system or no system at all.  As a result I have seen a tendency for purchasing agents, buyers, and even owners to purchase a little extra of most inventory items so they are never out.  This mistake costs the business tremendous amounts of cash that should be used instead to drive sales or reduce debt.  On top of that many smaller businesses fail to calculate inventory turnover nor age their inventory.  As a result no action is taken on old obsolete inventory.

Will owners invest in some sort of inventory management software to free up valuable cash?  Often times the answer is no because the owner is satisfied with the “system” currently in use to buy inventory.

This tip is for these companies.

Most smaller companies I visit have stock rooms and inventory shelving filled with inventory ready to be used.  On the surface everything looks great.  However, when you look at top shelves and the lowest shelves and ask questions you will invariably find very old or even dead inventory.  The fast turning inventory is at eye level where it can be easily accessed.  The old and dead inventory is never touched.  In fact, sometimes there will be an inventory tag on this merchandise so if a physical inventory is taken in the future the count is already done!  All I see on these shelves is money not being used. 

Here is the solution for these companies.  Eliminate the top and bottom shelves.  Take them out.  Sounds crazy but it will work because now the purchasing agent will be forced to have a model inventory to fit the reduced space.  The luxury of overstocking is over.  Could the company error by having too little inventory.  I have not seen that occur. 

What does the business do with the old inventory?  Convert it to useable cash by returning it to vendors, having a Saturday garage sale, or selling to other companies.

Is this approach drastic and crazy?  Probably is, but I have seen it free up much needed cash.

Businesses run on cash.  Not on dead inventory.