The fourth quarter is the most critical sales period for any retail business because of the major shopping holidays that fall within the period. For multi-channel retailers, almost 40% of sales occur in the six weeks of November 1st through December 15th. Preparing the inventory to handle the influx of sales without depleting the current cash flow is a delicate balancing act that if achieved, delivers impressive Q4 numbers. Efficiently managing your inventory finances during the holidays requires supporting the sales demand with flexible pricing strategies, lower manufacturing costs, and sufficient inventory.
The Fourth Quarter Brings a Perfect Storm
Despite the financial potential of holiday shopping, the season itself presents a perfect storm scenario that clashes high demand with a short sales period and mixes in potentially long lead times with major vendors. Logistics becomes a problem, increased labor needs can take from the cash reserves, and you may be fearful of tying up more money in an inventory stockpile. These challenges create turbulence for the industry, though cash flow underlies every area of concern. Retail inventory management expands to consider marketing, merchandising, sourcing, operations, and pricing with the hope that sales correspond to your year-long planning and expectations.
The Correlation Between Inventory and Cash Flow
Preparing for Q4 inventory needs should start as early as possible, but the problem with getting a head start is the impact it has on cash flow. Much more extensive checks need to be written to cover the additional order being placed, creating a liquidity problem. While you may have confidence that the funds will be replenished throughout Q4 sales, these decisions can significantly disrupt your cash flow until those sales start rolling in. However, not having enough inventory on hand could lead to additional financial complications.
In order to prepare for holiday needs, there are several options. While making advance purchases incrementally can help mitigate the overall profit-risk you may experience from purchasing too much inventory at once, you are still left with the problem of taking away vital marketing and development funds. As you evaluate these decisions against the bigger picture of the entire quarter’s financial needs, there are several strategies for ensuring proper inventory management.
The Strategies for Maximizing Both Inventory and Cash Flow
For Q4 success, there are two key strategies to implement. One involves demand forecasting, and the other relies on inventory financing. Let’s take a closer look at each of them.
- Utilize Demand Forecasting
To effectively manage your inventory needs, you need an accurate prediction of what to expect. These future sales predictions inform reordering practices, allowing you to dip into cash flow and cautiously maintain inventory control. For accurate information, an inventory management system is a solution. These digital tools rely on machine learning and artificial intelligence to compile data that considers past holiday demand, seasonality, pricing, and purchasing trends.
Armed with these reports about market trends, your team can predict with greater accuracy which items will be most needed for the upcoming season. Company growth capitalizes on these trends, and the marketing efforts can tap into high-demand products more specifically. Homepage features for certain products can result in significant sales spikes, but the purchasing department needs to coordinate the supply to match consumer demands. Your inventory purchases and supply should correspond to the advertising products that significantly impact the company.
- Utilize Inventory Financing
Once you know the trends to expect, you can prepare for the increased holiday demands. The costs of preparing for the incoming sales projections are a major point for retailers and their cash flow. Rather than worry about choosing between inventory needs or meeting overhead costs, you can use financing to build an inventory supply that will keep pace with consumer demand. Financing options are unique, ranging from retail business loans to business credit cards or lines of credit. Regardless of which option best meets the company’s needs, these retail finance possibilities offer a lower-risk, lower-cost way to secure the needed inventory for crushing fourth-quarter projections.
Financing gives your company a way to keep the shelves fully stocked long before the first-holiday shopper crosses your threshold. Your company isn’t waiting on payments for products or for the sales momentum to bring in the funds needed to order other trending products. You enjoy uninterrupted sales with a greater inventory capacity. Larger-than-average inventory purchases, fully funded by a financing option, can also reduce the products’ costs and increase your profit margins. There are also more flexible payment options with financing that allow retailers to space out repayments and avoid tightening their cash flow after receiving funds.
When preparing for a record Q4, business loans, merchant capital, or working capital loans are just a few of the financing options that give you the freedom to build up your inventory supply and meet consumer demand. Combining inventory management forces with inventory funding gives retailers the tools to thrive during the holiday shopping season. To fund your inventory needs for the upcoming season, apply for an inventory financing loan with LQD Finance.