Proven Ways to Use Cash Flow to Keep Inventory Healthy
Lessons Learned: Two Ways to Use Cash Flow to Keep Inventory Healthy
Inventory can have a significant effect on the health of your business – how much of it you have, how much it costs to store and how quickly you can ship it to customers so you can generate revenue. Depending on your business, it may be to your benefit to keep inventory on hand longer-term, in hopes of goods increasing in value – or, if your products are perishable or customers have high expectations for speedy delivery, you may need to move goods out of stock and into stores and shipping boxes as soon as possible.
No matter how you manage inventory, it’s important to use cash flow to help manage inventory in a way that keeps your business humming. While the two Kabbage customers below approach inventory differently, they’re both careful to make sure they do so while staying cash flow positive.
Betting on bobblehead value
Phil Sklar may have spent the earlier part of his career in finance, but he’s known just about everything there is to know about bobbleheads since he was a teenaged collector. In 2013, Phil and his childhood friend and fellow bobblehead fan, Brad Novak, started a custom bobblehead company for sports teams and businesses that might want their own large-headed figurines.
When Phil and Brad realized their own collections had hit 3,000 items, they decided to open the first National Bobblehead Hall of Fame and Museum in Milwaukee. Opened in 2019 as a labor of love and to showcase the brand, the museum is already turning a profit and attracting many bobblehead lovers and curious visitors.
The thing about bobbleheads, Phil explains, is that their value typically increases over time, unlike many products whose value can decrease as they languish in stock. Based on the ups and downs of sports teams — which players are having big years and which teams are becoming hot prospects for championships — Phil may decide to buy up bobbleheads but delay selling them for several months.
“Maybe we initially sell a few hundred of a certain type of bobblehead for $30 each, but six months later they’ll sell for $100,” Phil says. That’s what happened when he stockpiled bobbleheads for the Washington Capitals hockey team, which eventually won the Stanley Cup. “It makes sense to sit on certain models that we think will do well later.”
Inventory management is an important part of Phil’s day-to-day business strategy. Storing bobbleheads for months requires cash to replace the revenue he and Brad would generate by selling them. Phil uses a line of credit to cover expenses while waiting to sell bobbleheads at the optimal time and price.
The line of credit also helps Phil and Brad take advantage of good deals on new bobbleheads. “If we want to buy an exclusive line of ‘Game of Thrones’ bobbleheads, for example the vendor might require a minimum purchase, so it helps to have the cash flow available,” Phil says.
Shipping fresh flowers faster
At Calyx Flowers, an online florist based in Yarmouth, Maine, inventory only has value when it ships out immediately. Mark Ranalletti and Kap Wallingford bought the company as it was languishing under its previous owners – in part because customers were dissatisfied with wilted bouquets.
“The previous owners used to send orders using two-day shipping, and they encased the flowers in plastic containers,” Mark says. “The flowers looked much worse when they arrived, so the owner was losing business.”
Once they became owners, Mark and Kap decided to switch to overnight delivery and better packaging so that blooms arrived at peak freshness. “If you’re in the fresh flower business, overnight is the only way to ship,” Mark says.
Mark and Kap used a line of credit so they could start to ship inventory quickly, with proper packaging, while waiting for customer satisfaction to improve. Those investments have paid off: The company’s return/refund rate, 15 percent at one time, is now just 2 percent. “It’s a big turnaround for the business,” Mark says.
For many businesses, successful inventory management goes hand in hand with cash flow. Whether you’re holding on to stock long-term, or getting it out the door as quickly as it comes in, healthy cash flow helps you take care of costs connected with your preferred inventory strategy.