Inventory, Open-to-Buy, Turnover
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Retailing is a delicate balance between merchandise and cash. It's a high stakes balancing act: commit money early to large quantities of merchandise, and possibly end up with too much; or, commit less up front, saving cash for later, and take the risk of not being able to get the goods when you need them.
Rule #1: Inventory buying plans use a four-part equation. That basic four-part formula for budgeting inventory purchases is: Sales plus Ending Inventory minus Beginning Inventory equals Purchases ("Open-to-Buy")
Don't fall into the trap of buying only on the basis of beginning inventory and projected sales. You also must decide how much inventory you need on hand at the end of the planning period before you can figure your purchases.
Rule #2: Set a target for the turnover rate you want to achieve for each merchandise classification, and for your business as a whole. These rates vary widely, because merchandise mix demands in some categories are greater than in others. Wonder what your turns "should" be? See the benchmark numbers for typical turnover rates in your retail segment at The ROI.
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Merchandise Budgeting (Open-to-Buy Plans)
By Month • By Classification • By Department • By YOU! Go there now
As a retail owner, one of your primary goals is to boost profit margins—right? You know that good inventory management is essential to producing top-notch profits. You also know that bad inventory management can cause big problems with profit. But, do you know the actual cause and effect of bad inventory management? What can you do to avoid the "Diamond of Doom"? read more ...
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Retail business owners must manage the three basic financial underpinnings of your business: cash, inventory, and profits. The ROI believes the best approach to this is to look ahead. "Turn on your financial headlights!"
These days, independent retailers cannot afford any excess inventory. Studies have shown that excess inventory can cost your operation 2-1/2% per month! Storage costs, insurance, pilferage, damage, obsolescence, taxes and interest on loans add up to 30% annually to the cost of the goods you carry. Because those costs continue to rise, tight inventory control is still one of the best investments you can make—especially during the buying season.
Now. Learn Basic Retail Finance. At your own pace. 24/7.
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No retailer really wants to pay for bookkeeping or accounting. But it's necessary for two reasons: (1) to accurately satisfy the I.R.S.; (2) to accurately show where the business has been and where it is now. This second reason is essential for what REALLY matters: doing better in the future! The ROI has developed The Screening Test for Retail Bookkeepers. As an ROI Member you may download a free copy of that test to use as you interview prospective bookkeepers. For more information, see The ROI's "Bookkeeping Articles."