Friday, May 15, 2015

What happened to my cash flow?

Beth VadeBonCoeur, Accountant
Tax season is (finally) over. Your accountant has likely told you how your business did last year. But do you ever wonder, “If I made money last year, where did all of my profit go?” 

There are times, as business owners and managers, where the accounting records show a profit, but it’s still difficult to pay bills. When you are "in the black," it's easy to assume you should have extra cash. But in reality, this is not always the case.

What happens to your cash flow, and how can you solve the problem?

Whether you’re a funeral home, vault dealer or cemetery, you should start by looking at your inventory. We all have some kind of inventory: caskets, urns, finished vaults, infant/child products. It can feel good to have a warehouse or garage full of products ready to go out to families, but did you realize that you’re also looking at dollars sitting around? They’re just in the form of products.

Managing inventory levels can be a challenging balancing act. If inventory levels are too high, then you have a lot of money sitting around in the form of products. Carrying excess inventory is costly, because you have to pay to manage it and store it. But on the other hand, low inventory levels create their own problems. You may not have enough product on hand to meet customer demand. This leads to lost sales, rush charges and a negative experience for the families you serve.

So, how do you make it work? Regularly monitor and review your inventory levels. The amount of finished, ready-to-go inventory needs to be compared to actual sales figures to determine if the balance is right.

You also need to consider your inventory mix. Are you keeping lots of slow moving items?

Your purchasing habits also impact inventory levels. Are you buying earlier than you need to?

Competition, death rates and so many other parts of your business are ultimately out of your control. However, inventory is an area where you can make a big impact. By taking the time to monitor inventory levels and making necessary changes, you will see improvement to your bottom line and your cash flow.
 

This article originally appeared in Trigard Tuesdays, our weekly electronic newsletter featuring information for the funeral industry. Sign up for your free subscription at http://www.trigard.com/tuesdays.

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