Carrying too much stock can leave your shelves full but your bank account empty. For service providers, this concept applies to work in progress (WIP), which functions as virtual stock. Taking too long to invoice for services is equivalent to holding onto unsold inventory.
To understand how efficiently you’re turning stock or WIP into cash, calculate your stock turn. This is done by dividing your cost of sales (from your annual financial statements) by your average inventory or WIP. Don’t worry if you’re unsure how to do this—expected stock turn rates vary widely by industry, and we can help you determine what’s ideal for your business.
The goal is simple: convert stock to cash faster. Here are some questions to help you get started:
1. Do You Have a Stocking Strategy?
Establishing a stocking strategy is critical. Define:
- Safety stock levels (the minimum amount needed to avoid running out).
- Desired stock levels for each category.
- Re-order points to ensure timely replenishment without overstocking.
2. Are You Using Stock Management Software?
Effective inventory management requires real-time data. Do you have software that tracks stock levels at any given moment? Investing in the right tools can prevent overstocking or understocking.
3. How Do You Handle Slow-Moving Stock?
Identify and address slow-moving stock items. Clear policies should be in place to minimize outdated or unsellable inventory, freeing up space and cash.
4. Is Stock Shrinkage Costing You?
Shrinkage from theft, damage, or errors can significantly impact your cash flow. Evaluate how much this is costing your business and put measures in place to reduce it.
5. Do You Have a Formal Stock Ordering System?
An organized stock ordering system helps prevent excessive stock levels and ensures you maintain the right balance between supply and demand.
Take Control of Your Stock Turn
Improving your stock turn is one of the most effective ways to unlock cash in your business. Whether it’s refining your stocking strategy, reducing shrinkage, or implementing better tools and processes, small changes can lead to significant results.
If your stock levels are holding back your cash flow, let’s talk. In our Cashflow & Profit Improvement Meeting, we’ll calculate your stock turn and show you how much cash you can unlock with an actionable plan tailored to your business.