Your Inventory Is Lying to You

I was walking through a client’s warehouse last month. It was impressive. Floor-to-ceiling racks. perfectly wrapped pallets. Thousands of units are ready to ship.

The founder stood next to me, beaming. He swept his hand across the room like a proud father. “Look at that,” he said. “We are stocked up for Q4. That is $2 million in assets right there.”

I didn’t have the heart to tell him in that moment, so I’m telling you now.

That isn’t $2 million in assets. That is $2 million of cash that is currently in a coma.

The Balance Sheet Trap

This is where good brands quietly bleed out.

Your accountant puts inventory in the “Current Assets” column. It looks positive. It adds to your company’s value.

But in the real world of e-commerce, inventory that sits for more than 90 days isn’t an asset. It is a liability.

• It costs you storage fees (Amazon FBA fees just went up again, by the way).
• It ties up the cash you need for marketing.
• It risks becoming obsolete or expired.

I call it “The Silent Fire.” You can’t see the smoke, but your profit is burning up slowly, month by month, in storage fees and opportunity costs.

The “Just in Case” Virus

Why do we do this? Why do smart founders overstock?

Fear.

We are terrified of the “Out of Stock” notification. We think missing a sale is the worst thing that can happen. So we buy 10,000 units “just in case,” when the data said we only needed 5,000.

We trade Cash Flow for Comfort.

But you cannot pay your employees with comfort. You cannot pay your PPC agency with “extra units in the warehouse.” You need liquid cash.

Velocity > Volume

The most profitable brands I know don’t have the biggest warehouses. They have the emptiest ones.

They don’t brag about how much stock they have. They brag about how fast they turn it over.

If you turn your inventory 4x a year, you are a business. If you turn it 1x a year, you are a storage unit.

Diagnose the Patient

It is painful to look at this. Nobody wants to admit they bought the wrong product or over-ordered.

But you need to stop looking at the “Total Value” of your inventory and start looking at its “Health Score.”

• Which SKUs are your “Zombies” (dead stock)?
• Which ones are your “Cash Cows” (high velocity)?
• How many months of supply do you actually have vs. what you think you have?

Most founders guess at these numbers. Or they check them once a quarter. That is too late.

To help with this, we put together a simple Inventory Health Scorecard.

It’s a simple but ruthless checklist designed to spot the “Zombies” in your warehouse before they eat up any more of your cash.

It takes 5 minutes to fill out. It might save you 5 months of storage fees.

Link: Download the Inventory Health Scorecard

Cheers,
Rupesh