Rethinking Inventory & Debt in the Current Economy [VIDEO]
In a recent conversation, Signature Analytics’ CEO, Pete Heald, and President, Jason Kruger, shed light on a critical issue faced by businesses in the current economic environment – managing inventory while carrying debt. They highlight how companies can rethink their processes and operations to improve profitability, by addressing excess inventory and thinking strategically about mounting interest rates associated with debt.
Inventory Surplus and Cash Shortage
The COVID-19 pandemic and ensuing supply chain disruptions led many companies to accumulate excess inventory. Many resorted to leveraging credit lines or financing to procure stockpiles of inventory to offset supply chain disruptions. However, with the rise in interest rates, some companies now find themselves cash-strapped, which hampers their ability to manage and run their businesses effectively.
Understanding the Cost of Inventory
To navigate these challenges, business leaders need a deep understanding of the current cost structure of both existing inventory and new incoming stock. While holding additional inventory made sense during the disruptions of the pandemic, it is now time to examine price structure, inventory, and margins more strategically. The decision to liquidate stock, even at a lower profit margin, could be more beneficial than retaining it while paying higher interest rates on the underlying loans that afforded the initial purchase. Converting inventory into cash allows businesses to pay off their debt and reduce interest payments, freeing up capital to run operations more strategically and with less fear of cash shortages in other areas.
Streamlining Inventory Management
Looking ahead, President, Jason Kruger, advises businesses to reevaluate how quickly they’re turning their inventory. The buying pace of 3 years ago can now give way to leaner inventory management with the supply chain opened back up and delivery times more reliable.
Depending on your unique situation, you may find that reducing or even liquidating a portion of your inventory can improve cash flow, lower storage costs, and reduce the risk of being left holding the proverbial bag as it relates to obsolete stock.
Coupled with the right strategic support, businesses can optimize their inventory management processes to better align with changing market dynamics and the current economic climate. This proactive approach to inventory management, as recommended by Pete Heald and Jason Kruger, can be instrumental in improving a company’s profitability in these challenging times.
Reach out to learn more about how Signature Analytics helps business owners make smart business decisions based on accurate, relevant, and timely data and excellent accounting and financial management.
