Inventory is one of the most expensive investments that any business would hold. Most of the total capital of the business is usually tied in inventory. However, as people have gone on been enlightened, they have learnt that it is a big burden to carry too much inventory in business. Inventory is directly related to cost and risk. Many businesses are in many times astonished when they see that their inventories are not moving as first as they expected them to move. The best way to avoid this risk is to sell inventory.
When the economy is tight, then it means that the customers are not going to purchase as much. Most of this inventory could be overstock, excess or slow moving. These types of inventories in your business are usually reducing the cash flow. Below are some of the costs that you incur from having excess inventory in your business.
The first of it is interest. Most of the business owners are forced to borrow money so that they can buy inventory. This is then a risk because when the inventory refuses to sell as quickly, then you will be needed to get other avenues of paying the interest. This is why one is advised to sell of the excess inventory that has refused to move so as to pay off the money you have borrowed, and it can stop bearing interest.
The other cost you incur from holding a stock is the cost of storage. This will be dependent on the size of the warehouse that you have. The storage cost increases more when you have to employ some people in the warehouse for handling the inventory. The only way you can escape catering for this cost is to sell inventory that is excess in your business. It will also grant you some space to put some stock that is more moving.
Storing obsolete inventory also puts you at the risk of experiencing the depreciation cost. It is just obvious that when stock stays for a long time without selling it will depreciate. This means that it is going to lose value to the market. This will make them only to be bought at a cheaper value as time goes on. The more you stay without selling your goods than the value of the goods goes on reducing. It’s, therefore, advisable to sell the goods to liquidators as soon as you realize that the goods are moving slowly just to avoid this depreciation cost.
Time is also as important as money. Many are the times that you spend thinking about the excess inventory and the reasons as to why the inventory did not give you the returns that you expected. Every business person will always think of how the slow moving stock is preventing them from investing further.
With all this then we can have a conclusion that you can kill your business by keeping excess inventory in your stores. When you have slow moving stock in your business, then you should see a red light. Sell inventory that does not move any longer and save yourself from the risk.