Getting Rid of Stale Inventory
One aspect of their business that the retail, manufacturing, and distribution clients in my CFO practice need to handle better is inventory–particularly they need to understand that it’s important to get rid of stale inventory as soon as possible.
Business owners hate to admit when they make a mistake (i.e. when they buy or produce something that does not sell). We all do it, I used to do it. It is a peril of the game. DO NOT TAKE IT PERSONALLY. Don’t let it delay you from taking the next step, which is what I like to call failing forward fast. That means as soon as you know something will not sell, get rid of it! This will allow you to use the cash from the sale to purchase more productive assets and more productive inventory. You know, the stuff that really sells.
Do not worry about the margin hit!! Take the margin hit, otherwise it is almost a guarantee you will sell it for less somewhere down the line. By selling the slow movers as soon as possible you will get more inventory turns which will result in less inventory and more profit. One of the most valuable CFO Duties is the management of inventory turns and impressing upon the business owner the extreme benefits of admitting inventory mistakes as soon as possible, converting them to cash and buying more productive inventory assets.