The Importance of Inventory Management
Inventory is oftentimes one of a company’s largest assets. It’s also, oftentimes, one the company’s least managed assets because it’s the most difficult to manage.
Purchase – built – shipped. The quicker your inventory goes through this process, the better you’re managing your inventory. And the faster you get your inventory to turn is obviously better financially for the business. Many owners fall in love with their inventory so they keep more than they need to keep. That is money just sitting on the shelf and one way companies then get starved for cash.
In manufacturing, you’re buying parts to build your product. You’re building either to order or to stock and then, to sell. You have to purchase the components, track them and price them in your system, and there may be hundreds to manage. If you’re not systematically reporting the inventory, you don’t know what you have. And if product is not turning fast enough, you’re incurring a carrying cost; again, leading to money just sitting on the shelf.
Every business model, whether manufacturing or distribution (where there’s a long lead time so more inventory is needed), can come up with an ideal for reporting and performance standards. Good inventory management involves both record-keeping (how much inventory you have plus how much it costs) and performance tracking (turn). The better you do each, the more able you’ll get lenders to lend against it.
If a company is losing money, inventory is where lenders look first because if inventory is not well managed, that’s a sign that the whole business is probably not managed well. Conversely, tight controls on inventory usually signal tight controls on the books.
Bottom line: inventory needs to perform well for a business to thrive. Take a walk through your warehouse and honestly evaluate: Is it tidy? Is inventory well-arranged? Is there a natural flow to things? Can you tell exactly what you have? If you can’t answer “yes” to every question, you need to run a tighter shop because operational efficiencies need to be nailed down so that when sales bring in greater revenue, the business can handle it.
About Celtic Capital
Companies looking for working capital to cover operating expenses, fund growth, increase buying power and take advantage of vendor discounts and rebates turn to Celtic Capital. With an appetite for the more complex transactions, Celtic Capital has a history of success in crafting creative, flexible asset based financing solutions from $500,000 to $5 million with no financial covenants.
As an independent lender, working with companies nationwide, Celtic Capital is willing and able to alter price and deal structure and expand lines of credit to handle its clients’ increased revenues; and when cash flow is an issue, will look toward providing an inventory facility to help offset lost cash flow.