Inventory Holding Costs: How to Calculate + Formula

Posted on by Pavel

Inventory holding costs can soak up working capital. When mismanaged, it can lead to significant loss and missed opportunities. While we know your intention is to learn more, and that’s why you are here, we want to start by pointing out that holding costs and inventory costs are complex. While we can provide an overview of things to be mindful of and help you understand inventory management, it’s important to stay close to your own business and have a clear understanding. Things that can impact a business are like a domino effect so it’s important to know where they are stemming from.

Keep reading as we explain inventory holding costs, how to calculate them, and why they are important to understand.

What are inventory holding costs?

Inventory holding costs are the costs associated with storing (or holding) inventory until it is sold. Inventory that remains unsold can tie up cash flow in several ways. Additionally, some products are more expensive to hold than others. Hence why it’s encouraged to stock just the right amount of inventory, not too little and not too much. Holding costs can include storage space, insurance, labor, damaged or expired goods, and so forth. While holding costs are unavoidable, there are things you can do to minimize the expense. Understanding holding costs associated with your business is a good place to break down the equation. While we are unable to analyze your business, we can help guide you in the right direction. Let’s take a look at how to calculate the costs of inventory and why it’s important. 

Why is calculating the cost of carrying inventory important?

In business, revenue is one thing and profit is another. To clearly understand the difference between the two and continually drive the bottom line, you’ll need to know where your money is going. By calculating the cost of carrying inventory, you can be one step closer to accurately calculating profit margins. Even businesses that are operating with healthy profit margins can experience cash flow issues. Inventory financing is often used to overcome cash flow challenges that can prevent businesses from stocking enough inventory. Leveraging inventory financing can also help businesses have more cash to invest in other areas of growth. 

How to calculate inventory holding costs

As you aim to calculate inventory holding costs, note that it should be within the 20% to 30% range of your total inventory value. If you pursue inventory financing, backers or lenders will likely want a full financial picture of where money is going to justify the need for cash. To accurately calculate inventory holding costs here are some components/calculations you’ll need to understand. 

  • Storage costs: To calculate storage costs, include all costs associated with physically storing inventory. This could include rent for the space, utilities, insurance, and more.
  • Depreciation: Depreciation, much like opportunity cost, is intangible. Naturally, over time the value of inventory decreases, which is known as inventory. To calculate depreciation you can use the following formula:
      • Depreciation = (cost to make goods – salvageable value) / inventory lifespan
  • Opportunity costs: To calculate opportunity costs take the potential return from the unchosen scenario and subtract it from the return from the scenario chosen. Opportunity costs in relation to inventory represent the cost of holding dead inventory as opposed to other, potentially more profitable products. 
  • Employee costs: Labor adds up, and while it’s an operating cost, you should be able to calculate labor that pertains to holding inventory. 

The formula to calculate holding costs

  • Inventory holding costs = (storage costs + employee salaries + opportunity costs + depreciation costs) / total value of inventory 

Where do you typically encounter holding costs?

Inventory holding costs can impact financials. As you calculate profit margins, balance sheets, and other important financial documents, you’ll likely encounter holding costs. Even if you operate a lean and efficient business that executes efficient inventory management, there will be holding costs. Regardless though, you should work to minimize holding costs. Holding too much inventory is not a good thing. You want to hold enough inventory to ensure you do not miss sales, but you do not want to waste resources overstocking inventory. Utilizing effective inventory management is critical to ensure you meet the demands of customers while protecting your bottom line. 

How Kickfurther can help

Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you customize and control. With Kickfurther, you can fund your entire order(s) each time you need more inventory and put your existing capital to work growing your business without adding debt or giving up equity.

Why Kickfurther?

  • No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.
  • Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.
  • Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.
  • Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.

Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. By funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it – product development, advertising, adding headcount, etc.

Closing thoughts

Inventory plays a pivotal role for CPG brands. Understocking and overstocking inventory can both lead to problems and or missed opportunities. As you try to navigate the perfect balance of effective inventory management and efficient operation, you may encounter cash flow challenges. With delays in accounts receivable and high operating costs (no matter how you try to minimize them), you will need plenty of cash to hold inventory and keep operations going. While there’s no one-size-fits-all solution, inventory financing may be an effective solution for your business. CPG brands may struggle to obtain inventory financing that works. As a team of entrepreneurs, we truly understand the challenges you may be going through. At Kickfurther we aim to keep business owners in control while allowing them to access funding for up to 100% of inventory with no immediate repayments. To get started, create a free business profile at Kickfurther. It’s fun and easy, and can really pay off in the end. So, what are you waiting for? 

 

How to Use Technology To Boost Supplier Relationships

Posted on by Pavel

Technology can be viewed as a good and bad thing, but primarily in business it offers tremendous opportunity. For supplier relationships, it delivers a long list of benefits. From expanding your reach to suppliers to offering better and faster communication, technology can boost supplier relationships. However, it can also present some risks and downsides too. As a business owner, you’ll want to make sound decisions, and avoid temptation of things that sound too good to be true. When it comes to technology we must know what to leverage, and what to refrain from. With the goal being to grow your business, we provide valuable insights as to how to boost supplier relationships with technology. 

Benefits of using technology to boost supplier relationships

  • Better communication: Communication is key in everything we do. We often overlook how easy it is to reach a business or person nowadays – thanks to technology. From email to text messages to applications that allow us to view our account and receive support, communication is more accessible. The one thing that is still dependent upon you though is to deliver the right messages. Stop to think about how you say things or what you want to accomplish when communicating. Being easy to deal with is a great way to gain trust with your supplier. 
  • Collaboration: With the ability to snapshot a picture over in a matter of seconds or send a text with a brilliant idea, we can collaborate with partners. Maybe it’s even through video calls that you collaborate. Regardless of the way, there are endless ways to work closely with suppliers for better collaboration. On the suppliers end, this can allow them to better meet your needs, thus increasing their chance of retaining the account. Technology can benefit both you and your supplier, and this is just one example of that.
  • Improved transparency: Thanks to technology we can know what’s going on without picking up the phone in most cases. From tracking orders to viewing contracts via the click of a button, we can stay in the know. Choose a supplier that invests in technology that allows them to deliver transparency for partners. 
  • Increased access to funding: Technology and the internet creates opportunity for business owners. Beyond selling more products in the e-commerce space, you can access funding or e-commerce financing options too. Leveraging inventory financing can give you more buying power, which is yet another way to build a better relationship with suppliers. Who knows, they may even be willing to offer better pricing for bulk or standing orders. 

Which technologies can be used to boost supplier relationships?

  • Cloud based solutions: Often used to streamline communication and visibility. Examples of cloud based solutions that update in real-time include cloud drives that allow documents to be shared, project management programs, and reporting dashboards. 
  • Applications: Suppliers can offer applications that can be customized for customers. Through these applications, customers can access things such as order tracking, contracts, or message boards. 
  • Cell phones: In today’s world most of us are given a cell phone, not a landline or extension, although we may still have those too. With portable technology such as cell phones and tablets, we are easier to reach, even on-the-go.
  • Inventory management systems: Inventory management systems can automatically re-order products as needed. It can also help you gauge season slumps or season speed-ups. Being able to provide suppliers with accurate updates on the sales cycle can encourage them to work with you.
  • Inventory financing: Inventory financing can provide the funds you need to order inventory, without tangling up cash. With the power to keep investing in your business without stocking less inventory, you can grow faster. For suppliers, this can mean getting paid faster and holding more consistent orders. Both of these outcomes can make you more desirable to work with, thus building trust. 

Tips for supplier relationship management in relation to technology

  • Use technology properly: Technology should be properly used in order to be as effective as possible. It’s easy to get sucked into too much technology, which can actually lead to inaccuracy and confusion. Before deploying technology make sure you need it and make sure there’s no overlap that could cause confusion. 
  • Leverage competition without breaking relationships: With technology, we have more access to options. While this can deliver the opportunity to pick your head up and compare offers and offerings from time-to-time, be mindful of the relationship you have built. Find ways to professionally and respectfully leverage the information to renegotiate or prove there are better ways to do things. 
  • Align technologies: Once you’ve found your supplier, align technologies to ensure all are operating on the same page. As you shop suppliers it can be helpful to discuss technology as it can help you make your decision. 

How Kickfurther can help

Paying suppliers on time and being equipped with cash to order inventory on a regular basis can help build relationships, technology set aside. At Kickfurther you can get funding for up to 100% of your inventory with no immediate repayments. Plus, funding through Kickfurther is up to 30% lower cost than comparable options. Through our entrepreneur-centric platform, business owners can create a business profile to showcase their business pitch. Through the details you provide, our community of backers can choose to provide the funding you need. This creates the opportunity for two passionate parties to come together in pursuit of success. Our funding model is much different than others you may have heard of. Here are just a few of the highlights:

  1. No immediate repayments. You control repayment. Don’t pay until your product sells.
  2. Non-dilutive. Maintain equity in your business, we know how hard you worked for it. We are here to work with you, not against you. 
  3. Not a debt. Because you have enough financial strain, this is not a loan. 
  4. Upfront capital. Pay suppliers faster with upfront capital, there when you need it! 

Closing thoughts

Suppliers play a critical role in the success of your business. Finding trusted partners that meet your needs, or exceed them, can keep your business growing. Communication on the other hand is also extremely important in everything we do in business and our personal lives. With communication being more accessible thanks to technology, it’s important to remind ourselves of the power of words. Even if it’s a quick text, stop to think through your message before sending. Just because we are all more accessible, does not mean we have to respond right away. The person on the other end of the message deserves a clear response that you mean. As you work toward growing a business you are overly proud of, you may need funding along the way. If inventory funding can boost growth while helping your supplier relationship, visit Kickfurther for affordable and flexible options. 

What Is Inventory Valuation and Why Is It Important?

Posted on by Pavel

To ensure healthy financials and operations, inventory must be properly managed, and that’s a large task as you may know. Ultimately it will be worth it to afford the energy and resources required to understand inventory management and take action to monitor it on an ongoing basis. Inventory valuations are necessary to help a company and or investors determine the value of unsold inventory stock. It’s important to know how much inventory you have at all times, not only to know when to order more, but to know what you can liquidate if needed. 

What is inventory valuation?

Unsold inventory has value, and it’s usually not the same as what a company paid for it. Say hello to our friend depreciation. Or in recent times we’ve even seen things appreciate. Inventory valuation is an accounting practice used to determine the value of inventory stock. As a refresher, stock is finished goods that are ready to be sold whereas inventory includes raw materials, finished stock, and any other assets used during production. Valuations can include stock or all inventory depending on your production model. For companies that produce inventory and plan to calculate inventory in their valuation, calculations can include direct labor, direct materials, factory overhead, and more. Inventory valuations are reflected on the balance sheet and can be used to help determine inventory turnover ratios. 

Why is inventory valuation important?

Most companies perform an inventory valuation at the end of the fiscal year. It’s important to identify the surplus or shortage of inventory to understand its impact on the production and profitability of the business. Additionally inventory valuations directly impact how a company calculates its cost of goods sold (COGS), another extremely important metric. This is also another way inventory valuation directly impacts a company’s profitability. Companies should select one method for calculating inventory valuation as they can be audited and will want to ensure accuracy and consistency. 

What is the objective of inventory valuation?

Gross profitability and financial position are the two main objectives of inventory valuation. Companies need a clear picture of both in order to make business decisions. They also need a clear picture of these to reflect accurate financials. In order to accurately calculate gross profit a company needs to subtract the cost of goods sold from net sales. Using the COGS formula (beginning inventory + purchases – ending inventory) a company can work to calculate gross profit. Also reflected on the balance sheet, COGS and inventory both contribute to profitability. Inventory is treated as a current asset so it can be tempting to make it look more valuable than it is but it will be to your advantage to reflect accurate assets and financials. 

How to choose an inventory valuation method

There are different ways to value inventory. Choosing one method and sticking to it can help operations run smoother and help financials remain more accurate. Here are some methods for inventory valuation: 

  • First in, first out (FIFO)
  • Last in, first out (LIFO)
  • Weighted average cost
  • Specific identification method

To choose the appropriate method, consider the market environment and financial objectives. You should also consider what you are best equipped to accurately calculate. This can depend on the type of inventory management systems in place. Circumstances can vary, so be sure to understand the different methods to know which one will work best. For example, if prices are consistently rising, then FIFO may be the best option. However, if prices are falling consistently then LIFO may be best.

Additional tips for inventory valuation

  • Factor in all costs: When valuing inventory, consider all costs associated with acquisition and getting goods ready for sale. Once you understand all associated costs, do a deep dive to understand the exact amount that’s allocated to inventory. 
  • Track inventory 365 days a year: While you may only value inventory at the end of your financial year, you should be monitoring inventory and the flow of it constantly. 
  • Aim for the lower side: While it is tempting to make your company look like you have more assets than you do, always steer toward the lower side. We encourage you to take risks, but want to remind you that nothing is more important than a realistic view of your company’s financial health. 

How Kickfurther can help

Holding inventory can be expensive. Additionally, mismanagement of inventory can lead to missed opportunity and impacts on profitability. As you aim to invest in operations while also maintaining healthy inventory stock, you may encounter cash flow dilemmas. That’s where Kickfurther comes in. 

Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you customize and control. With Kickfurther, you can fund your entire order(s) each time you need more inventory and put your existing capital to work growing your business without adding debt or giving up equity.

Why Kickfurther?

  • No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.
  • Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.
  • Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.
  • Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.

Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. And by funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it – product development, advertising, adding headcount, etc.

Closing thoughts

Accuracy, effectiveness, and profitability are key when operating a business. From making business decisions to communicating with stakeholders, finances reflect how a business is doing, how they can improve, and their likelihood of success moving forward. While inventory is an asset, you don’t want to hold too much inventory at once. At the end of the year or quarter, take the time to reset for the upcoming year or quarter. Evaluating inventory at this time can help you identify overstock or understock, or perhaps it’s proof of your stocking inventory at the right rate. Either way a proper inventory valuation can help you free up cash flow or determine there’s a need for inventory financing. CPG brands that feel inventory funding could benefit their profitability should visit Kickfurther for a unique funding solution that offers flexibility without depleting the bottom line. 

How to Prevent Stockouts: Tips for Businesses

Posted on by Pavel

Maintaining a well-functioning supply chain is vital for small business success. Encountering a merchandise stockout can pose significant challenges. It’s essential to understand the implications of stockouts and to take proactive measures to prevent them. 

What are stockouts?

In inventory management and supply chain logistics, stockouts are situations where a business or organization runs out of stock or inventory of a specific  product or item. This means the desired item is no longer available for customers to purchase. Stockouts can happen due to  various reasons, including inaccurate demand forecasting, supply chain disruptions, delays in replenishing inventory, or unexpected spikes in demand.

How stockouts impact businesses

Stockouts can significantly impact businesses in several ways. First, they result in lost sales and revenue as customers are unable to purchase items they want, and they may turn to competitors to buy them. This also leads to customer dissatisfaction and reduced loyalty, potentially damaging a company’s reputation. The cost implications are notable, with increased expenses for expediting orders and maintaining excess inventory. Furthermore, stockouts can disrupt production schedules, lower productivity, and cause missed opportunities for additional sales. Ultimately, persistent stockouts can harm a brand’s reliability and long-term success, making effective inventory management crucial for business sustainability. Effective inventory management, accurate demand forecasting, and a robust supply chain are essential to minimize the occurrence of stockouts and their associated negative impacts on businesses and customer satisfaction.

Consequences of stockouts

Stockouts can have several negative consequences, including:

  • Lost Sales: When customers cannot find the products they want due to stockouts, the business loses potential sales and revenue.
  • Customer Dissatisfaction: Stockouts can frustrate customers, leading to dissatisfaction and potentially damaging a company’s reputation.
  • Reduced Customer Loyalty: Repeated stockouts may cause customers to seek alternatives or turn to competitors, eroding brand loyalty.
  • Increased Costs: Stockouts may necessitate expedited shipping or emergency orders to replenish inventory quickly, leading to higher operational costs.
  • Inventory Holding Costs: Maintaining excess inventory to prevent stockouts can increase storage and carrying costs for a business.
  • Disrupted Production: In manufacturing, stockouts of essential materials can disrupt production schedules, causing delays and impacting overall efficiency.

Tips for Preventing Stockouts

To prevent stockouts and maintain a reliable inventory supply chain, businesses should  consider the following strategies:

Accurate Demand Forecasting

Use historical sales data, market trends, and customer feedback to improve the accuracy of demand predictions. This helps in better inventory planning.

Techniques for Improving Demand Prediction

Employ advanced forecasting methods such as data analytics, machine learning, and predictive modeling to enhance demand forecasting precision.

Supplier Relationship Management

Foster strong relationships with suppliers to ensure open communication, timely deliveries, and priority access to inventory when needed.

Implementing Just-in-Time (JIT) Inventory

Adopt Just-In-TIme principles to minimize excess inventory and maintain a lean supply chain. This approach helps in reducing carrying costs and the risk of stockouts.

Continuous Monitoring and Reordering

Implement automated systems that continuously monitor inventory levels and trigger reorder points to replenish stock before it runs out.

Diversification of Suppliers

Relying on a single supplier can be risky. Diversify your supplier base to reduce dependence on one source and mitigate the impact of supply disruptions.

Use Inventory Management Software

Invest in inventory management software to optimize your stock levels, track product movement, and generate real-time reports for better decision-making.

Safety Stock:

Maintain a buffer or safety stock of critical items to cover unexpected fluctuations in demand or supply disruptions.

Collaboration Across Departments: 

Encourage cross-functional collaboration between sales, marketing, and operations teams to share insights and align strategies for inventory management.

Regular Review of Inventory Policies: 

Periodically review and adjust inventory policies to adapt to changing market conditions, business growth, or seasonality.

Emergency Response Plans: 

Develop contingency plans to respond quickly to unexpected events, such as supply chain disruptions or sudden spikes in demand for specific merchandise..

Supplier Performance Metrics: 

Establish key performance indicators (KPIs) to evaluate supplier performance regularly and address issues promptly.

By implementing these strategies and continually refining your inventory management practices, you can minimize the risk of stockouts, enhance customer satisfaction, and optimize your supply chain for better overall efficiency and profitability.

How Kickfurther can Help

Lack of funds for inventory can lead to undesired inventory shortages. Inventory ties up a significant amount of capital, which can pose challenges when striving for growth. Small businesses often address this issue by seeking inventory loans and funding. But finding funding solutions have their own challenges, including costs and qualification requirements.

Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you customize and control. With Kickfurther, you can fund your entire order(s) each time you need more inventory and put your existing capital to work growing your business without adding debt or giving up equity.

Why Kickfurther?

  • No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.
  • Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.
  • Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.
  • Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.

Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. And by funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it – product development, advertising, adding headcount, etc.

Closing thoughts

You can avoid stockouts with the help of Kickfurther inventory financing. At Kickfurther, we understand the importance of having cash on hand and we want to ensure your business is operating at its best. We can help you get affordable working capital for inventory quickly, so you can avoid stockouts. 

If you’re interested in getting funded at Kickfurther, here are the easy steps to get started:

  • Create a free business account
  • Complete the online application 
  • Review a potential deal with one of our account reps to get funded in minutes

Using Kickfurther inventory financing you can can unlock the necessary cash flow to build your inventory, meet your daily financial commitments, and grow your business. 

 

Inventory Carrying Costs Explained

Posted on by Pavel

Businesses often become hyper fixated on the cost of inventory itself, overlooking the high costs associated with storing and handling the inventory, also known as inventory carrying costs. These costs often grow due to insufficient or inadequate inventory levels, such as overstocking. Another root cause of inventory issues is the strain of cash flow. As businesses allocate most of their cash to holding inventory, other areas of operations suffer such as inventory tracking systems. 

Failure to properly manage carrying costs can greatly impact profitability and unnecessarily tie up existing cash flow. As you can see here, it’s critical to understand all the costs associated with inventory and operations while maintaining healthy cash flow. One way to overcome challenges is to access more working capital or inventory financing, which may sound like an impossible and costly activity, until you discover Kickfurther. 

What are inventory carrying costs?

Inventory carrying costs, also known as holding costs, are the expenses associated with storing and handling inventory before it sells. Storing inventory isn’t cheap and costs vary depending on the size of the business and inventory levels, but typically come out to about 20-30% of total inventory value. This can greatly impact your businesses profitability and increases the longer inventory is stored. Beyond the monetary cost your business can see from inventory carrying, it can also have opportunity cost and force you to turn down growth opportunities due to tying up your companies resources in inventory. 

Why inventory carrying costs are important for businesses

Understanding and managing inventory costs is crucial for businesses to maintain financial health. In order to project accurate profit margins, operating costs, and other figures that impact the financial health of your business, you’ll need to understand inventory carrying costs. If costs are high it can lead to reduced profitability and cause cash flow pinches, having the  potential to impact your bottom line. If you can recognize costs are high, you can take measures to improve efficiency and reduce costs. 

By determining just how much you spend on storing and handling inventory, you can then adjust your operations accordingly to mitigate the costs. While we’re sure you already see the importance, here are a few more reasons why inventory carrying costs are so important for businesses to understand:

  • Production planning: Knowing how much you spend on storing inventory can lead to changes in production schedule. If a product can be manufactured quickly, you can keep less inventory on hand and restock as the orders come in. You can also determine those top selling products with lower carrying costs and may decide to keep more inventory on hand.  
  • Inventory accounting: As inventory is often a businesses largest expense, having a clear depiction of carrying costs will lead to more accurate accounting. 
  • Profitability of existing inventory: With carrying costs being such a high percentage of overall inventory costs, tracking the value of holding costs per product can help you better determine the profitability of each product. 

Benefits of managing inventory carrying costs effectively

Managing inventory carrying costs effectively offers several benefits for businesses. As inventory carrying comes with a variety of expenses, if  managed correctly, businesses can reduce overall expenses and improve profitability. As fellow business professionals, we know this is always the mission. Beyond that though, here are some of the benefits that can result from managing inventory carrying costs effectively:

  • Improved accuracy 
  • Accurate financial statements
  • Proper pricing adjustments
  • Ability to identify opportunities of improvement
  • Free up working capital or identify the need for more

Tracking costs can be a complicated task as there are many moving parts and expenses. Regardless of how sophisticated internal systems are or are not, always be sure to give the level of effort tracking expenses deserves. Shortcutting this as it relates to inventory or operations can negatively impact business. 

Components of Inventory Carrying Costs

In order to understand how to effectively manage inventory costs, it is crucial to understand the components of inventory carrying costs. Here are some common inventory carrying costs: 

  • Storage costs: Storage costs are as they sound. Think of expenses related to rent or lease payments for warehousing or storage facilities, utility bills, property taxes, insurance, and maintenance costs.
  • Capital costs: Also referred to as opportunity costs, these are the expenses related to tying up capital in inventory. It includes the cost of financing inventory, such as interest on loans or the opportunity cost of using that capital for other investment purposes.
  • Obsolescence costs: When inventory becomes outdated, obsolete, or spoiled, businesses face costs associated with disposing of or writing off the value of such inventory. This can occur due to changes in technology, market trends, or product expiration.
  • Insurance costs: Inventory may be covered by insurance against potential losses, theft, or damage. Insurance premiums form a part of the carrying costs.
  • Handling and labor costs: Expenses related to labor, equipment, and utilities used for handling, moving, and managing inventory within a warehouse or storage facility. This includes wages, benefits, equipment maintenance, and utilities required for inventory handling.
  • Depreciation: If inventory items are subject to depreciation, such as goods that may lose value over time, the decline in value is considered as a carrying cost. Depreciation can be tracked on the income statement and can be tax-deductible – even more of a reason to track it closely and accurately. 
  • Risk of shrinkage: Inventory shrinkage refers to losses due to theft, damage, spoilage, or errors. The cost of such losses is included in the carrying costs.
  • Taxes: Businesses may be subject to certain taxes, such as property taxes or inventory taxes, based on the value of the inventory held.

How to calculate inventory carrying costs

To calculate inventory carrying costs, you will need to consider the various factors that contribute to the overall cost of holding inventory that are identified above. Once you add up the expenses for a particular product over a specific period of time (typically monthly or yearly), you can then divide those carrying costs by the total inventory value. You can then multiply that number to get a percentage, using the equation below:

Inventory carrying costs = Costs of storage / Total inventory value (over specific time frame) x 100

This calculation will help you determine which products have a higher percentage of associated  carrying costs and identify those products that are more profitable. It will also help you reevaluate certain processes and practices to ensure you are maximizing profitability. If you have inventory management systems in place, they should be able to generate reports and track expenses as needed. If you don’t find manual methods to bridge the gap until you have funds available to improve efficiency. 

Need more working capital? Visit Kickfurther today. 

Tips for Managing Inventory Carrying Costs

Is your business feeling the impacts of high inventory carrying costs? First and foremost, these costs can be reduced by maintaining optimal inventory levels and minimizing inventory on hand. Avoid excessive stock that ties up capital with storing inventory, but make sure you still keep enough inventory on hand to meet customer demand.Here are some tips that can help you manage inventory carrying costs:

#1. Slow down: Slowing down to invest time into accounting for expenses, analyzing efforts, and identifying areas of improvement can help manage carrying costs as well as improving the bottom line.

#2. Use demand forecasting: Knowing exactly how much inventory to stock and when can help make inventory costs more manageable. Avoiding overstocking inventory can also make inventory management more feasible. 

#3. Access more working capital: A lack of working capital can stretch business owners thin causing them to overlook important activities. While you should understand costs and have efficient inventory management in place before securing funding, there’s always room for improvement. For affordable working capital that allows you to maintain equity and avoid taking on debt, turn to Kickfurther. A solution created by entrepreneurs for entrepreneurs. 

Benefits of Effective Inventory Carrying Cost Management

Effective management of inventory carrying costs comes with a wide range of benefits that can improve your business. When done right, it can reduce overall expenses and improve profitability, freeing up additional working capital. With better cash flow, your business can take advantage of growth opportunities and improve operations. By effectively managing holding costs you can also minimize the risk of stockouts and improve order fulfillment rates, which can lead to higher customer satisfaction. A business that manages inventory carrying costs can gain a competitive edge, achieve better financial stability, and are better positioned for growth and success.

Conclusion

When effectively managed,  businesses who reduce or can properly account for  inventory carrying costs can see financial health improve. Plus, the ability to identify areas of improvement can directly impact the bottom line. . . success feels so good doesn’t it? As you navigate the land of business ownership, you may find you need more access to working capital. Inventory can tie up a lot of cash, thus leaving finances too tight to invest in inventory management systems, labor, and other important  activities. While you may stray away from funding at first due to past experiences or beliefs, Kickfurther offers a solution that truly works to help grow your business. Our platform connects business owners to a community of backers that can fund up to 100% of inventory. Business owners can maintain control and devise repayment plans that work for them. 

  1. No immediate repayments. You control repayment. Don’t pay until your product sells.
  2. Non-dilutive. Maintain equity in your business, we know how hard you worked for it. We are here to work with you, not against you. 
  3. Not a debt. Because you have enough financial strain, this is not a loan. 
  4. Upfront capital. Pay suppliers faster with upfront capital, there when you need it. 

To get started, create a free business profile today!

How to Get Working Capital For Retail Inventory

Posted on by Pavel

Working capital in retail business funds day-to-day operations. As money comes and goes, it’s important to properly plan and balance accounts to ensure cash flow is healthy. To maintain healthy cash flow, retail businesses often need to utilize funding for large expenses such as inventory. If cash is tied up in inventory, this can cause a dilemma for working capital. Especially when you factor delays in payment for inventory and the need to replenish it. If we back this up a few steps, there’s also the problem that you might just not have enough working capital to stock inventory. 

So, how do you get working capital for retail inventory? Retail inventory financing is available (as you may already know), but you’ll want to carefully approach how you secure it. As a small business you may face strict requirements and high costs associated with inventory financing. In fact, we know this reality all too well as it’s the challenges of inventory financing for small businesses that began our mission. 

At Kickfurther, we help small businesses obtain working capital for retail inventory – for up to 30% less than other options. Plus, it’s not a loan nor does it require the business owner(s) to give up equity, thus truly supporting the business you’ve worked so hard to build. We put you in control, as you’ve worked too hard not to be. If the idea of getting inventory now and paying later entices you, keep reading to learn more about how to get working capital for retail inventory. 

What is working capital?

The difference between a business’s current assets and current liabilities. . . aka working capital. A very simple concept that holds a lot of weight. Working capital represents cash available to fund day-to-day operations, such as paying off short-term obligations and funding inventory purchases. Working capital is an essential measure of a company’s liquidity and financial health. Afterall, companies can have healthy sales but without working capital they are at risk. While working capital is more complex than the formula to do so, for reference, here’s how you calculate working capital:

  • Current assets – Current liabilities = Net working capital.

In order to effectively calculate your businesses working capital, it’s important to know your monthly inflows and outflows of cash on hand. Maintaining an appropriate level of working capital is crucial for ensuring smooth operations, managing cash flow effectively, and meeting financial obligations in a timely manner. Without it, you may need to rely on external financing or take measures to increase your working capital, such as reducing inventory levels (an option you likely don’t want to deploy). 

Why working capital is important for retail businesses

Retail businesses often need more working capital as they must have inventory to sell. It’s not that working capital is more or less important for retail business, it’s that retail businesses often face more of a challenge managing working capital. Working capital can directly impact a retailer’s ability to manage daily operations, meet customer demand, and generate revenue. Here are a few reasons how working capital can benefit retail businesses: 

  • Covering short term operational needs: Working capital provides the necessary funds to cover day-to-day operational expenses such as rent, utilities, marketing, maintenance, and other overhead costs. It ensures that a retail business can continue its operations smoothly without disruptions.
  • Inventory management: Retail businesses rely on inventory to generate sales and revenue. Working capital allows retailers to purchase and maintain optimal levels of inventory. Plus, it ensures that there is enough stock available to meet customer demand while maintaining other areas of operations. 
  • Technological advancements: In the rapidly evolving retail industry, technological advancements play a crucial role in improving efficiency, customer experience, and competitive advantage. Working capital enables retail businesses to invest in technologies such as point-of-sale systems and e-commerce platforms. These investments can streamline operations, enhance customer engagement, and drive growth. 
  • Payroll costs: Employee wages and benefits constitute a significant portion of a retail business’s expenses. Working capital ensures that a retailer can meet its payroll obligations regularly and on time, thereby maintaining a motivated and productive workforce.
  • Setting up new retail locations: If a retail business plans to expand by opening new stores or locations, working capital is vital. It provides the necessary funds to secure lease agreements, renovate or build new store spaces, purchase initial inventory, and cover other startup costs. Sufficient working capital supports the successful launch and initial operations of new retail locations.
  • Equipment: Retail businesses often require various equipment, such as display shelves, cash registers, refrigeration units, computers, vehicles,  and security systems. You’ll need cash available to purchase the equipment you need to run your business. 

Options for working capital for retail inventory

A common choice for retail businesses is inventory financing as it can solve working capital issues and provide other benefits as well. Plus, there are usually more options for inventory financing since it’s secured by inventory. This means it can be easier for small businesses to qualify. As you explore options consider the costs and overall impact on the business, good and bad. Here are some options you can look into for working capital for retail inventory:

  • Inventory financing 
  • Term loans
  • Line of credit 
  • Small Business Administration (SBA) loans 
  • Invoice financing 
  • Merchant cash advances

How to Prepare for Working Capital Financing

As you prepare to obtain working capital financing, there are a few things you’ll want to address:

#1. Analyze your inventory: Before requesting a loan or funding for inventory you should have a pulse on current sales, demand, trends, and so forth. 

#2. Determine how much working capital you need: You’ll need to determine how much working capital you need. If funding is for inventory this may be in terms of your next order. Oftentimes backers or lenders will pay suppliers directly so you’ll want to have your ducks in a row to make things as seamless as possible. 

#3. Choose the option that’s best for you: As a business owner, you are responsible for big decisions on a regular basis. Working capital financing is no different. Be sure you compare options and find one that works for you. If working capital financing is going to put strain on your business, it may just not be the right option. Choosing an option like Kickfurther allows you to control repayment terms, maintain equity in your business, and keep debt low since it’s not a loan. 

At Kickfurther you can get inventory now and pay later, all while having fun doing so. Our platform connects business owners to a community of backers that can fund up to 100% of inventory. 

  1. No immediate repayments. You control repayment. Don’t pay until your product sells.
  2. Non-dilutive. Maintain equity in your business, we know how hard you worked for it. We are here to work with you, not against you. 
  3. Not a debt. Because you have enough financial strain, this is not a loan. 
  4. Upfront capital. Pay suppliers faster with upfront capital, there when you need it. 

Tips for Successfully Securing Working Capital Financing

Securing working capital can be essential to a retail business’s success. However, especially for smaller businesses, it can be difficult to obtain the working capital financing needed to grow your business. In order to make sure you are ready to successfully secure the financing you need, here’s some tips. 

  • Make a plan (think long-term)
  • Organize documents
  • Keep a close eye on cash flow 
  • Keep your foot on the accelerator. 

Our most valuable tip though. . . choose Kickfurther for working capital inventory funding!

Closing thoughts

Retail businesses owners have enough to worry about and working capital is often at the top of the list. By taking advantage of working capital financing, you can free up the cash flow you need to grow your business and ensure you meet your day-to-day obligations. 

At Kickfurther, we understand the importance of having cash on hand and want to make sure your business is operating at the level it should be. Let us help you get affordable working capital, so you can get back to putting your cash where it matters most – growing your business! 

Interested in getting funded at Kickfurther? Here are 3 easy steps to get started:

#1. Create a free business account

#2. Complete the online application 

#3. Review a potential deal with one of our account reps & get funded in minutes