Inventory All Your Assets at Year-End

Posted: December 21, 1998 by Sutton Landry in Money, Operations, Planning

Classic Cincinnati Post column from 1998

December is a month of mixed blessings for small business owners. For retailers, many of whom will do as much as 45% of their total annual sales during the month, December sales are absolutely vital, and they look forward to them with anxious anticipation. But regardless of what holiday season sales are, small business retailers, and manufacturers, know that at year-end they will face one of their least favorite tasks — the dreaded annual inventory.

This year I’d like to suggest a different approach to year-end inventory. By all means count all your merchandise, raw materials, and work-in-process. But do more than just count it. Analyze it, too. And while you’re analyzing your inventory, take time to analyze your other assets as well, assets like your planning processes, your capital equipment, your operating space, your employees, your customers, and your professional advisors.

As a small business owner, you have limited resources. That is a given. In practical terms it means that you can ill afford to have those limited resources invested in unproductive assets of any kind. As you inventory each asset category, you want to identify unproductive assets that you can sell off, thereby generating cash for new opportunities that will help you grow and improve your profitability.

Let’s start with the actual merchandise or raw materials inventory. You have to count it for tax and management purposes, but tax is usually the primary consideration. Not this year. Make sure that you look closely at it. Any inventory that you have had for more than a year that hasn’t moved, probably isn’t going to. You should sell that material now for whatever you can get for it. You can discount it heavily and try to sell it retail or try to resell it to another business owner or wholesaler for as close to cost as you can get. Your goal with stagnant inventory isn’t to make a profit, but rather to generate cash to allow you to invest in other opportunities.

This assumes that you are always on the lookout for new opportunities and that you take the time to do some basic planning. The minimum effective planning would consist of a set of measurable goals for the coming year (sales volume, profit margin, and total profits), an operating strategy for how to achieve those goals, a monthly calendar/schedule of activities necessary to implement the strategy, and a budget. If you don’t have these planning processes in place, you need to add these assets immediately. Their only cost is your time.

Once you have specific goals, then all the rest of your analysis centers around achieving those goals. In the area of capital equipment, for example, the key question is whether or not your existing equipment is adequate for achieving your goals. What equipment do you need to replace, what do you need to add, and what surplus equipment can you sell to generate cash for your other equipment and operational needs? These are the kinds of questions that you need to answer.

What about your operating space? Is it sufficient for increased sales for this year and the next three years, or do you need to start looking for either additional space or a totally new location? If you are leasing now, should you look into buying property?

What about your employees? Do you have the right people, with the right skills, to grow? If not, do you need new employees or do you need to provide additional training to your current employees? Do you regularly send your employees to training programs to improve their skills? Do you know how to do a cost/benefit analysis of adding an additional employee? Do you know what job you would fill/create next?

What about your customers? Without them, you don’t have a business. Do you have a detailed customer list which includes information about how much they buy from you and how frequently? Since selling more products to your existing customer base is usually the easiest way to increase sales, do you regularly survey your customers to find out what additional products or services they are looking for? If you don’t have a customer data base with detailed information, then this is an asset you need to add now.

Lastly, what about your professional advisors? Are you getting the kind of service that you should from your accountant, your attorney, your banker, your business consultant, and your insurance agent? Do your advisors respect each other and play well together? Like your other business assets, these people are key to your growth and success. You need to have real confidence in their ability to perform for you. If you don’t, then you need to replace them, just as you would any other unproductive asset.

This year, take the time to really inventory all your assets so that you can have a prosperous and productive 1999.

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