Note: This post Here’s Why Managing Inventory Is Crucial For Business Expansion is a guest post by Sophia Hault.
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Managing inventory is one of the most difficult tasks any business, big or small, can encounter. It is something that requires a well-maintained balance between the products that you put out for people to buy and your cash flow. Making mistakes can be very expensive. Having too much inventory present can tie up valuable cash while having too little can makes your business run out of products that could be sold for a profit when demand is high. These problems could put a serious dent in your expansion goals.
Having the right amount of inventory to be present can be a difficult thing to accomplish, especially if your business has financial issues. Due to this issue, you might not be able to have the right amount of inventory to fulfill orders. This problem intensifies as your business grows. As your business grows, the number of orders you take in also increases, which usually impacts the amount of inventory you have. For example, if you are a small business and you get a big order that you have to fulfill in a specific amount of time, the chances are, you are going to run out of inventory, and you not might be able to come up with cash to replenish it. This is where inventory financing comes in, as it will be able to provide you with upfront cash enabling you to buy the inventory that you need to fulfill such big orders.
WHAT IS INVENTORY FINANCING
Inventory financing is known as an asset-based loan system that lets you get cash upfront from a lender which can then be used to replenish your inventory or finance the manufacture of products and the raw material used in the manufacturing process. This type of financing will allow you to save some cash which can then be used in other aspects of your business such as paying daily operation expenses or buying even more inventory. There are many lending companies available that offer good inventory financing rates and will allow you to save up a good amount of cash, which can be used to grow and expand your business. Interest rates can range from 0 percent to as high as 70 percent, depending on the lender you are choosing.
Other than that, there are many ways inventory management can help you expand your business at a fast rate. Some of the ways are listed as follows.
Sell Products in New Markets and Channels
In theory, having a growing demand for a certain product or products is a good thing for the growth of any type of business. However, to accommodate such growing demand, a business needs to have a certain amount of inventory present at their disposal. Without proper funding, businesses are not able to buy raw material or pay for the manufacture of such products and without having inventory, your business will not be able to grow.
To solve such an issue, you could tap into your emergency cash reserves to pay and buy more inventory, but this will leave you without cash that was put away for emergency purposes. Through inventory financing, you can pay for more inventory without having to exhaust your emergency cash reserves. This inventory can then be used to sell products in a new market or geographical location, in a new market segment, or through new sales channels like an e-commerce site. This will allow your business to grow at an exponential rate.
Leverage Seasonal Demand Spikes
A good example of such a case is the holiday season. It can be very advantageous for any type of business during such a period of time. During this time, your business is going to need inventory to fulfill more orders and demand. With the help of inventory financing, your business can stockpile on inventory beforehand.
The best time to buy and stockpile on seasonal inventory for such a time is during offseason when there are multiple discounts available. For example, you can buy Christmas inventory at a cheaper rate which you can later sell in December for a huge profit. Ordering inventory in the offseason, when demand is low, is the best time for any business. But a huge cost of buying inventory in advance can be a huge dent on your cash reserves. Inventory financing is a possible solution to this problem as using it to stockpile on inventory for the holiday season will allow your business to save up cash which can be used in other aspects of your business. It will also allow you to manage your inventory more effectively. Seasonal demands are very advantageous for business as it ables them to pull in more revenue than they normally do. So, a good idea would be to stock up on inventory for such scenarios.
Avoids Listing Other Assets as Collateral
Another benefit of applying for inventory financing is that you don’t have to list other assets as collateral and the inventory itself acts as the main form of collateral. if you are a small business, you probably won’t have assets you can put down as collateral that bigger businesses have. These bigger businesses have access to collateral worth millions of dollars, such as machinery and equipment, they can put down as collateral to gain access to unlimited financing. Without having this leverage, you will not be able to get a traditional loan. So, using inventory financing will remove the need to have such big assets and make your business increase its chances of being approved for such a type of loan.
This will increase your chance of growing as you can pay back the inventory loan using the profits you earned by selling the inventory you secured using the loan. It is a win-win scenario for everybody.
Maximize Distribution Effectiveness
Consumers nowadays, expect products to reach their doorsteps within 24 or 48 hours of placing an order. If a product reaches a customer’s doorstep in time, they will return and buy more things due to the effective delivery system the business has.
To efficiently and effectively deliver products you need to stock on inventory and store it at your business locations. For example, if you have multiple store locations, it is a good idea to store inventory at all your store locations, to avoid any delays in the products reaching a customer’s doorstep.
Order can be placed from anywhere in the country you are based in and if you have multiple stores situated in different locations across the country, you need to make sure that every store has an adequate amount of inventory to fulfill orders and avoid any possible delivery delays. Through inventory financing, you can easily buy more inventory and stockpile all your store locations. this will allow you to have return customers as you have products available and you never run out of something a customer wants. This will greatly increase your revenue and will allow you to grow exponentially.
THE FINAL WORDS
Regardless of what your requirements are for getting a loan, there are many types of businesses that should look into increasing their inventory to grow and expand their business at a fast pace. Traditional loans can sots a lot at the end of the loan term, so using inventory financing is an easy way to avoid splashing the cash on such traditional loans. By using inventory financing, you will be able to offer fast delivery times, tap into new market locations, and prepare for the high demand for seasonal products. All of this will be achievable without having to put a huge amount of assets as collateral. today, we have made you aware of how inventory financing can help your business grow and expand. It is a good idea that you consider these ways before you apply for a conventional loan, as they will help you see not everything is solvable through a conventional loan.
About The Autor:
Sophia Hault is a business and technology blogger with great writing skills. She is a passionate reader and loves to share quality content prevalent on the web and keeping herself in an updated mode with the news in those industries. For more updates follow his on Twitter @sophia_hault
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