Thank you for asking this question! As someone who has owned multiple small-medium sized businesses, I know the importance of managing purchases in relation to cash flow. I prioritize the following when considering this question in relation to my own businesses.
1. Cash Flow-It is critical that you manage your ordering and expenditures as much as possible. For example, one of my businesses in the hospitality industry does a smaller business during the summer due to tourism taking away revenue whereas business booms during the fall and winter. There are two ways to consider this. You can either prioritize lean ordering/purchasing decisions in order to maintain a healthy margin during the summer months or you could use the summer months as a time to make necessary upgrades/purchases; especially if there are deals during that season. For example, I plan to make some upgrades this summer that will not be covered by summer revenues BUT I have put money to the side for these projects since September.
2. Customer Habits-Some items sell much better seasonally. For example, in the bar business, I generally place my liquor orders early in the week, have them delivered on Thursday’s in anticipation of the weekend rush, and pay the bill on Monday or Tuesday. This way, I get the benefit of the weekend’s credit card batches in the account before paying and I get the bill taken care of right away. During the summer, for example, I order less often and less of a quantity per order.
3. Purchasing-Big ticket items, briefly mentioned before, are often difficult to manage for small to medium sized businesses. As I stated before, I find it is vital to plan these projects in advance as much as possible and to create a buffer in the business account to cover unexpected purchases. The size of that account depends largely on the type of business and the rental agreement/real estate situation. This is less of a concern for my E-commerce businesses because they require much less monthly cash flow to run and there are generally no real estate expenses associated with operating them.
If you have any follow up questions, please feel free to ask. You’re also welcome to schedule a call for us to discuss your specific needs in further depth.
Answered 4 years ago
Businesses operating in an SME (Small to Medium Enterprise) often have an intense juggling act to play in relation to stock supply and where they choose to spend their money.
In the case of one particular client, who operated in the mining and Oil/Gas space; the challenge for them was actually determined by their customers engineering departments as introducing new products was not only risky, but also had the added risk of trying to ascertain just how much to stock relative to lead time and the overall service life. Some of those risks I addressed by supply contracts and agreements, consignment stock etc. which provide a level of security to take on said risk.
Another client had extremely volatile sales as it related to the construction industry, and as such were affected by things such as weather and construction deadlines which could see sales go from all to nothing literally overnight. What was worse was at the time, supply was sought from overseas which meant that stock levels (and working capital) was enormous to account for potential (no forecasting provided) sales and the lead time which exceeded three months. To solve that, I adjusted the lead time and supply which allowed for much faster turnaround (3 days as opposed to 3 months) and supplier negotiation which got the hard cost actually lower than the imported product - which at the time was (and still is) a very rare thing to be able to do.
Ultimately; purchasing needs to have quality in three major areas:
Quality of Price
Quality of Supply
Quality of Service
If you still have questions would be more than happy to have a chat over the phone especially if you have more follow-up questions or need some more specific advice.
Answered 4 years ago