Excess inventory is the most expensive investment for many businesses. A common practice for most businesses is to wrap up half of their total capital in inventory alone. However, is carrying that much inventory in one place wise? Here are the four downsides excess inventory can cost any business.
Time
Time is of the essence. If you catch yourself thinking or worrying day and night about your inventory and why it hasn’t sold as expected, your inventory is a major distraction. If not taken care of, your inventory stifles productivity and can even stagnate your business. Inventory always needs to be moving. Once it stops, so does the flow of your business.
Storage
The cost to store your inventory is also a huge hassle. When one 14 sq. ft. pallet costs $4.50 per square foot, it could set you back at a monthly fee of $160 or over $1900 annually. Handling costs are $4.00 per pallet, which adds up to over $350 and that’s a minimum. When you’re too full on inventory to think about purchasing more, you’re limited on space that could go to new and valuable inventory.
Depreciation
After a while, if your goods aren’t at the selling worth they were six months prior, your costs go down. The longer you wait to sell, the more value you lose on excess inventory.
Interest
Perhaps most inventory buyers don’t have enough cash outright to buy so they’re forced to borrow. If your inventory doesn’t sell fast enough, your costs begin to rise and your interest grows. When will you pay off the mounting interest and how long are you willing to put up with it?
Excess inventory can be a hassle, but fortunately, there are plenty of ways to decrease your inventory before it’s too late. Investigate ways you can decrease your inventory as fast as possible before these four downsides become too problematic.
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