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Saving Business Money by Cutting Inventory Costs

Save money by managing Inventory

There are many different ways that a company can actually save money.  In a good economy it is not unusual for a business to spend more freely or stock piles their inventory.  In a bad economy it can be a reality check in the sense that most companies have to tighten their spending.

It is really difficult for a lot of business owners especially if they are new to be able to balance their inventory according to client demands.   Being able to balance the inventory in a cost effective manner often comes with trial and error and a lot of experience.

It all begins with knowing the business well.   The business owner has got to know what items are going to be in high demand.   He also has to develop skills as a forecaster to try and accurately predict what items are going to move quickly and what mitigating factors could arise that may affect this.  For example if the business is weather related, such as providing heating or air conditioning equipment then future sales can be unpredictable.

Good accounting records are essential, for many reasons and they include the inventory.   On an average it used to be that the inventory count was done at year end.   Now with the computer age it is much easier to track inventory.   Whatever electronic tracking system is used, it should be accurate and easy to access to provide the information as to where the inventory is at in any given time period.

It is always a wise move to categorize the inventory into segments.   One segment should be the high cost items which usually make up the majority of a company’s inventory value but less in inventory count.   The inventory can then be broken down into two other segments pertaining to lesser valued inventory and the least value inventory.

Well planned delivery management can go a long way in helping to keep the required inventory under control.  There are a lot of factors that can affect this.   Being able to depend on strong and consistent suppliers is a key element.  If a business knows they can count on their supplier to deliver within a short time period then there is no need to stock pile on high end or fast moving products as much.

By being able to reduce the amount of inventory on hand it means less money that is tied up in items that are sitting in the warehouse.   This reduces the possibility of a decline in the product purchases having a serious impact on money being tied up in inventory if this should happen.

There are always additional costs that are affiliated with keeping large inventory.   These include the storage space, staff and insurance.  When the inventory is reduced then it turn these additional costs should be reduced.   Any business advice that can help keep your company financially solid is good advice.

 

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Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
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Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant

Email: sam@torontoaccountant.ca

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