According to an oft-cited U.S. Bank study, a whopping 82 percent of small businesses that fail have cash flow management issues. If you work in the retail or wholesale space, those cash flow management issues almost always involve problems with inventory. While inventory management problems come in many shapes and sizes, one of the most catastrophic can be the dreaded disease known as dead stock.
The Cambridge Dictionary defines dead stock as “an amount of a product that a company has bought or made but is unable to sell.” Unless you have the ability to return unsold goods, dead stock will tie up your cash and limit your operating expenses. Too much of it is the surest way to limit agility and put a business on the razor’s edge of viability. To understand how to minimize dead stock, you first have to understand how it happens.
How stock dies
Every company has to undergo a certain amount of guesswork when it comes to their inventory. Tastes change, which means certain products can in popularity while others fall out of fashion. The ever-fickle nature of the consumer populace creates a situation where no retailer has a perfect product line where every item sells out just as quickly as it arrives. There are always going to be stars and duds, and every product has a life cycle that crests and troughs. The question, then, becomes not so much how good are you at selecting products, but rather how quickly you can adapt to changing market conditions.
One of the easiest routes for dead stock to go from expected operating expense to existential threat is through poor inventory tracking and a lack of awareness on the part of buyers. If a buyer doesn’t know a product’s sales have dipped drastically in the past few weeks, it’s easy for them to place an order as they normally would, creating excess inventory that will be tricky to sell. One box of an item no longer in vogue isn’t a big deal; one pallet is, though; and one truck is a huge one. If a business is lackadaisical in its tracking and reporting of inventory, it risks letting dead stock levels grow.
When dead stock levels reach epic proportions, a business doesn’t have much option. They can aggressively cut prices in hopes of recouping some expenses. They might try to find a bulk buyer to unload their unwanted goods onto en masse. Most often, though, dead stock just sits there, taking up space and tying up cash. The longer stock remains dead, the higher its total landed cost. In the worst situations, a company’s best option may simply be to cut their losses and donate their dead stock.
AccountingSuite keeps dead stock at bay
At AccountingSuite, we believe that comprehensive inventory management is an essential part of any accounting software. We speak inventory and we care about businesses whose livelihood depends on keeping their stock in tip-top shape. Our software comes packed with inventory management features that will keep you apprised of the status of your stock, from the items that are gangbusters to those that are in danger of going bust. With up-to-the-minute data points from all of your distribution channels, you’ll never have to estimate whether a product is simply dormant rather than on the verge of death. These are the sort of insights that separate good accountants from great ones and struggling businesses from thriving ones.
Don’t let your business or your clients risk shuttering as a result of dead stock. Get the tools you need to respond, react, and anticipate the needs of customers with AccountingSuite. Head to our pricing page for more information.