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Chapter 2 of 5

Buying and managing stock


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Retail guides > Starting a retail business > Buying (managaing inventory)

Buying and managing stock

Most retailers have to buy and pay for inventory before they can sell it. Let’s look at how that works, and what sorts of challenges it presents.

Inventory is expensive

It’s common for retailers to have lots of their own cash tied up in stock, which can be scary. In fact, inventory can often be both your biggest asset, and your biggest risk.

your biggest asset
your biggest risk

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How to manage stock

Retail has been around for thousands of years, so a lot of thought has gone into managing stock. Business owners and accountants agree it’s important to nail:

  • ordering stock – you want enough, but not too much

  • paying for stock – it’s important to keep your suppliers sweet

  • valuing stock – it affects the value of your business (plus tax and insurance)

Ordering stock

There are lots of moving parts in a store. To place accurate and timely orders, you need to understand the supply side and the demand side of your business.

supply
demand

How much stock will you carry?

Inventory doesn’t just tie up money, it costs money too. Some items will inevitably get damaged or become obsolete while they’re in your store room. Be smart about how much you have sitting around. Maybe hold lower volumes of items that are perishable or that can be quickly replenished.

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Using apps for inventory management

Software can keep count of inventory for you. It can even integrate with a point-of-sale system (POS) to help you predict when stock will run low, and suggest when to order.

warehouse

Scan new items as they arrive into the warehouse and the software will automatically add them to your inventory.

point of sale

Items are removed from inventory as they’re processed through your point-of-sale system.

Paying for inventory

Supplier bills can come in thick and fast, and you don’t want to risk getting offside with any of them. To keep them sweet, you need solid cash flow and a reliable process for paying bills.

Taking care of cash flow

You’ll generally have to carry the cost of inventory for a long time between buying and selling. That means a lot of your money is locked up and unavailable for other expenses.

There’ll be times when cash gets low. Try to anticipate when that’ll be, and make a plan for getting by:

  • Create cash-flow forecasts: Map expected income and expenses on a calendar to project what your bank balance will look like over the coming months.

  • Make a plan: When you see a low period coming, consider delaying expenses, organising a loan, requesting longer payment terms from suppliers, or shrinking your orders. Or do something to stimulate sales, such as running a promotion.

Paying bills on time

When a retail business is humming along, there’s tons happening. Even if you’re flush with cash, it’s easy to get behind with bills. Build a process that won’t let you or your suppliers down.

invoice


Open and check invoices as soon as they come in
Make sure you got what you’re being charged for. If not, raise queries straight away – not on the day the invoice is due.

 



Schedule payment
Check the payment terms to see how long you’ve got, and decide on a day to pay that works for your cash flow.

 

calendar

payment


Make the payment
Either put it in your diary or schedule the payment with your bank. Banks even allow you to schedule batch payments for several suppliers at once.

 



Record the expense
Enter the cost into your business accounts so you have an accurate picture of your finances.

 

business records
tip

Valuing stock

Your stock is a big part of your business, so it’s important to put a dollar value on it. In fact, it's required by IRD.

Four big reasons to value stock accurately

  • It’s a big asset that helps determine what the business is worth.

  • You’ll want to insure it for the right value.

  • It affects your taxes.

  • If you don’t know what it cost, how do you know if you’re making money?

How to do it

You can value stock on an item by item basis, or by using averages. Each method has its pros and cons. You can learn more about stock valuation in our guide to inventory.


You can learn more about these methods in our guide to inventory.

Chapter 3: Selling from a store

You won’t be in retail for long unless you’re selling stuff. Learn how to make it easy for customers to buy from you, and see what else a good sales process can do for your business.

Read chapter 3

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