Tips on how to manage cash flow and inventory for the upcoming holiday season

Managing cash flow and inventory is part art, part science. For small businesses that derive a significant chunk of their profits during the holiday season, not keeping enough inventory can result in loss of sales to competitors, while keeping too much leads to fire sales of merchandise at the end of the season. Smaller retailers and wholesalers need to walk that tightrope between meeting increased holiday demand and keeping inventory costs low to maximize profits that will help sustain them through the next high season.

According to ShopperTrak, modest gains in 2012 holiday sales and foot traffic are expected, but that doesn’t mean entrepreneurs can afford to be complacent. “Small retail businesses need to start preparing for the holiday season at the beginning of the year,” notes Scott Berger, tax and entrepreneurial services principal at South Florida-based Kaufman Rossin. “Start by projecting cash flow to be sure you have the means when it’s time to place orders.”

For smaller retailers and wholesalers, a line of credit can help manage the lag in cash flow from accounts receivables or payables. But, as Berger points out, “it’s a lot easier to get credit when you don’t need it.”  Vendors, just like banks, are reluctant to extend credit if your business is not profitable. But having a line of credit when you don’t necessarily need it also gives your business more purchasing power.

“How far in advance you can begin stocking for those seasonal sales will largely depend on cash flow availability and terms worked out with vendors,” explains Berger. Ordering early and in bulk often garners discounts and more favorable terms, like being to wait until after the season to pay for inventory or the ability to return a certain percentage of unsold items. However, buying early does run the risk of tying up cash in unprofitable or obsolete inventory.

Continue reading this cash flow and inventory article at Bank of America’s Small Business Community blog.