Need accounting advice...

[Jodi]

I have a children's retail store in a mall. Been here for about 9 months. I am doing well. The only "loans" I have are for the inventory. Don't have other start up expenses.

Monthly rent and utilities are $1000.

I have been paying myself every two weeks. I am able to pay off the inventory that I sell but I don't pay what is still on the shelf (I could if I don't pay myself). I want to start paying for future inventory out of my bank account while still paying off past inventory. How do I go about doing this? I don't want to keep charging invntory.

Also, would you recommend keeping season end inventory for next year or selling it now on sale?

Any advice is appreciated.

[vangogh]

Welcome to the forum Jodi.

This isn't my area of expertise. I'm responding so that the post rises back to the top of the new posts list in the hopes that someone who does know will see it and give you a better answer than I can.

I would think as long as you can go without paying yourself for a month or so you could start paying off the inventory on the shelves. That should get you ahead some. When you say you want to pay out of your bank account do you mean a personal account or an account for the business? Ideally it's a business account you're referring to.

With inventory you want to do your best to keep track of what does and doesn't sell to know how much you really need on the shelves. With the seasonal inventory once you've been through a season or two you'll know how much is likely to sell so you can make sure to have enough inventory on hand. As far as placing things on sale as long as you're making a profit you should still be able to restock the shelves with the money you make. Selling lower just means you have to sell more to make the same profit. If you think you have a better chance of selling now at lower prices you could place items on sale and then restock and sell at full price when demand is greater.

The main goal with inventory is usually turnover. You want things coming in and going out as quickly as possible. If you keep track of what sells and what doesn't you can start to stock less or even none of the items that don't sell and replace them with what does sell.

[phanio]

Vangogh offered some very sound advice. It does sound like you might have a pricing issue - raising prices a bit might help get you over the hump or plowing back your pay into the company for a month or two might catch you up. Even reducing your inventory levels - keeping only what you can sell to match what you can pay for.

Regarding keeping or discounting seasonal inventory - it really depends. Are those items going to be in demand next year? Is there enough margin to discount them and still provide your business with operating capital? Are they costing you more to hold (including shelf space) than what you would discount them? Would have to know more.

Given the information here I could only suggest that you work with your suppliers and see if they will provide you more time to pay them - ask for 60 days or more to pay. This will give you time to move the product off your shelves; using those funds to pay off the supplier. At least this way, you won't be paying interest.

Lastly, with out knowing more - how are you financing the inventory? Hopefully you are using a method that matches. Inventory should turn several times a year or a season and your financing should work the same way.

I welcome you to provide more details so that we could possibly provide better answers.

Early in my MBA program nearly a decade ago, I came accross a book that really helped change the way I look at small businesses. It was writen by David Duryee and is titled "The Business Owner's Guide to Achieving Financial Success." I really think this book can help you out. It is not very big and is well written and has a great example to follow.

[Evan]

The above advice is good. For clarification -- to start this business, you loaned the company money to purchase inventory. It seems like once you pay yourself back, you end up making another purchase, and the loan repayment becomes a vicious cycle.

This indicates to me your profit margin is too low, you have too much inventory, or you're just inadequately capitalized -- or some combination. How much of your own money did you put in the business? Don't expect an instant return on investment. The fact you're able to break even is excellent.

I'm a big proponent of utilizing debt to manage your operations so long as you are ultimately in control, and have the capabilities of paying down the debt. For me, it provides a way of managing cash flows. Why pay for your inventory in full now when you're not going to sell it all until (let's say) the end of the month? Wouldn't you rather pay for it then? Especially if there is little or no interest.

As for what you should do for maintaining inventories, generally I'm against maintaining this years seasonal items until next year. Why? Is the price going to increase on them? Inventory isn't an appreciating asset, and there is a cost of maintaining it. You also need to worry about obsolesce, which does happen.

I do not know what you sell, but let's say it was (many) years ago and you sold Beanie Babies. Those things were a (brief) hit, and if you thought a certain type would sell next year for 2Y dollars (despite costing you Y), you would have been shocked the next year to realize it would only sell for 1/2Y -- a loss. So why even risk maintaining it for a year, only for the possibility of theft, fire, flood, or obsolesce, in addition to the cost of maintaining it get in the way? If it's a seasonal item, there's probably a reason for it.

Also, from a cost perspective -- you will also need to pay for that inventory NOW, and it's not earning you money. Ideally, you want your inventory to turn over quickly, or at least quickly in comparison to your industry.

My recommendation is just to leave this "loaned" money in the business, unless you really need it. You'll get it back one day. Also consider increasing the price of products as long as you're not out pricing yourself from competitors. If that's the case, then inventory is costing too much, and you should look for alternative vendors.

You also didn't state what type of entity this business is. Is this a sole proprietorship?

[Evan]

Early in my MBA program nearly a decade ago, I came accross a book that really helped change the way I look at small businesses. It was writen by David Duryee and is titled "The Business Owner's Guide to Achieving Financial Success." I really think this book can help you out. It is not very big and is well written and has a great example to follow.

Ah, the wonderful MBA. I just finished my MBA in May, and what a relief it is to be done. Of course the focus there is always on big businesses, and subconsciously, I always tried to view it from a small business perspective. Not always an easy task!

[huggytree]

i wouldnt sell your seasonal inventory at a loss....i often see seasonal things for 1/2 price at the store...i notice its always a very small amount and i assume 1/2 price is 'cost'

so for me it would depend on the amount of product and the ability to break even or make a little on the remaining product. if you have a lot of free storage space whats the harm in keeping it until next year. are we talking hundreds or thousands in lost profit here? you also need to consider your time to move the product back and forth...if it takes a couple of hours to move back and forth and your only losing a couple of hundred id sell it for 1/2 price

[Evan]

i wouldnt sell your seasonal inventory at a loss....i often see seasonal things for 1/2 price at the store...i notice its always a very small amount and i assume 1/2 price is 'cost'

so for me it would depend on the amount of product and the ability to break even or make a little on the remaining product. if you have a lot of free storage space whats the harm in keeping it until next year. are we talking hundreds or thousands in lost profit here? you also need to consider your time to move the product back and forth...if it takes a couple of hours to move back and forth and your only losing a couple of hundred id sell it for 1/2 price

Those are all considerations that must be factored into the decision about whether to sell at a considerable discount, or move forward. Most stores can't afford to keep inventory for a year, as there is no storage for it. Plus many "seasonal" items are seasonal ONCE, and won't be what's in style next year. For example -- this is often true of clothing stores, as this years fashion isn't the same as next year.