If cash is king—and, let’s face it, it is!—then cash flow is the savior. When you sell standing inventory, you turn the expense of building materials into cash. When your inventory stays on the market, your investment stagnates.
This is just one of the many leaks you need to consider when looking at your profits. It may feel like an immediate loss, but in reality holding on to it drains other areas you could be focusing on in order to reduce leaking profits.
Healthy cash flow is essential to manage your finances. How long does it take for you to receive payment on your accounts receivables? And how old are your payables? What impact would it have on your business if you could shorten these cycles?
Builders tend to cling to their anniversary inventory, rather than keeping it moving, which would stimulate cash flow. We’re not collectors. We’re sellers. Don’t fall in love with your inventory. Push it out the door.
• Sometimes, you have to cut and run.
• 10% loss means you need to make 11% to breakeven
• 20% = 25%
• 30% = 43%
• 40% = 67%
• 50% = 100%
• 60% = 150%
• 70% = 233%
• 80% = 400%
• 90% = 900%
Consider the “time-value” factor of your money. If you wait for the value to return, you’ve still lost money, because you could have taken the money sooner and invested it elsewhere.
Look at ROI versus ROE (Return on Energy). Standing inventory is a drain on your focus, energy, and productivity every time you look at it. Instead you could be focusing on your marketing, your training, your sales process, these are all places where energy equals profits.
BOTTOM LINE: Falling in love with your standing inventory will cost you.