A great ski retailer in Massachusetts, Roger Buchika, once said, "The less inventory you buy, the more money you make." This wisdom extends far beyond retail to impact any business carrying inventory. Excess inventory is one of the biggest cash flow killers, yet many business owners continue to overbuy, often due to fear of stockouts or hopes of quantity discounts.

Consider this real-world example: A distribution company client was sitting on a seven-year supply of product due to an unsuccessful promotion. The inventory cost them $60,000 and could potentially sell for $100,000 at regular prices. When offered $15,000 for the entire lot, many would consider this too big a loss to accept. However, by taking the $15,000 and reinvesting it in fast-moving inventory that turned eight times per year at a 40% profit margin, they generated an additional $200,000 in cash flow that year.

The key is to recognize that inventory sitting on shelves is frozen cash that could be working for your business. Today's operating systems offer sophisticated inventory forecasting tools that can help you identify optimal stock levels and spot potential overages before they become problems. Use these tools to make data-driven purchasing decisions rather than relying on gut feelings or past practices.

When you do find yourself with excess inventory, act quickly. Don't fall into the trap of holding onto slow-moving stock hoping to get full price. The carrying costs and opportunity costs of tied-up cash usually exceed any potential margin you might save. Price to move overstock quickly and reinvest in faster-turning inventory that generates better cash flow.

Remember, inventory management isn't just about having enough stock – it's about having the right stock at the right time. Regular inventory analysis and aggressive management of slow-moving items are essential for maintaining healthy cash flow.