If you are starting a small business and must carry inventory, then it is imperative to set up an inventory system. Excess inventory will be a drag on any small business, while sparse inventory may impede sales. But inventory is really just cash sitting on a shelf, so you don't want it sitting too long.

Be prepared to adjust the inventory on a very regular basis, if possible--your cash flow may depend upon it. Make sure that you have a tracking system that you can easily review. ("Missing" inventory is not an expense you want to encounter.) Factor in the shipping expenses for your product. There are many competing freight services, and it pays to compare several and re-evaluate often. These services normally raise prices yearly and may add fuel surcharges at high-peak shipping times. You will also want to make sure you have good payment terms and that you collect your receivables quickly so working capital doesn't become an overwhelming issue.

Published on: Oct 21, 2018