Saturday, June 26, 2010

"Inventory is What Can Make or Break Your Business"

In a small business you use what you have and buy what you need. Ours is an extremely small business at the moment and we don't have a lot of supplies tied up in our business inventory yet. We want to sell on Etsy and to do that we are in the process of getting business licenses, tax numbers, and a host of other documents to have the paperwork to prove that we are a small business and can actually do business legally here in the state of Missouri. But we can't sell anything until the paperwork is done. So everything right now is inventory. Supplies, works in progress, and finished products are just sitting there and not making any money for the business. And the finished projects won't make money until they are sold. Until then it is all just . . . well. . . inventory.

So now seems like a good time to talk about inventory.

Inventory is one of the more visual aspects of doing business. And while our business is really small right now this is the best time to start keeping track of our inventory and then as the business grows it is easy just to keep adding to your inventory records. Right now a visual inspection would work but maybe not in a year. We hope not in a year! So I started keeping inventory records now. Five and Nineteen Blackbirds will not always be small. We hope it will grow a lot in the future and we have plans to help it do so. Inventory plays a big role in helping your business grow.

There are basically three parts to inventory: the supplies, the product or products (paper dolls) in progress, and, of course, the finished product (Alice and all her soon-to-be friends) all represent various forms of inventory. And each one of these three actually represents money tied up until we sell the finished product which at present is Alice. Now you can begin to see how important your inventory might be to your business. You spend your business' money on supplies but that same money can't return back to you in the form of profits until your product sells. You've heard the expression. "My money is all tied up." right? This is like that. You've spent money but not yet seen a return on it when you look at your inventory (supplies, works in progress and finished products).

One of the bigger parts of doing business is knowing what you need to make what you want to sell and not having a lot of money tied up in supplies that are just sitting on the shelf. Unused and unneeded supplies that take up space are tying up your money that could be used elsewhere. You need supplies for sure for your projects--just don't over buy. By the same token don't under buy either. It will take a little experience to hit the right amount of supplies so that you have what you need but no more than that. A small business starting out can never have enough money. What small amount you have must be used wisely and inventory is one of those places where being wise pays off handsomely!

The trick to inventory is this: Buy only what you need to make your product and be timely about it. In other words when you decide what you want to make, buy all of the supplies that you need for that project before you need them (no panic shopping--that's costly) but no more supplies than you will actual use or pretty close to that. That keeps the cost low and gives you the finished product while freeing up money to use somewhere else like licenses. You don't know how popular your finished product will be so it is important to keep costs low and not have money tied up in extra supplies that are just sitting there, waiting to be used on a project that is either already done or a future project that may never happen. If you have a business plan and know which future projects will definitely get made and you have the extra money, you can buy supplies ahead for a future project and feel pretty good about it.

Some extra supplies are good to have on hand if you use them over and over again in similar projects. And sometimes you can find them on sale which is a really good thing. But supplies that are specific to each project need to be thought through carefully so that you don't underbuy or overbuy. Like I said, it is a fine line trying to determine what you need in the quantities that you will use and have the supplies arrive at the exact time that you need them.

To sum up inventories: Buy only what you need and use it up in the project that you will be selling. That way you make the best use of your business money. When your business has grown a lot, you will have a better understanding of how much in the way of inventory you will need to keep on hand: the supplies, the works in progress and the finished product ready to be sold. Experience as your business grows is priceless. You will learn a lot. Enjoy the journey.

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