JPAbusiness

The first step in determining the correct stock holding for your business is to understand your current Inventory Turnover Ratio (ITR) i.e. your stock turn.

As a rule of thumb, a stock holding that represents 12 months worth of sales is the maximum needed. However, it’s very hard to generalise.

Some businesses are import oriented so need to commit to a certain level of stock to ensure their freight rate is not exorbitant and/or they have sufficient stock ordered from a single season pre-order. This may cause lumps in their stock holdings.

Topics: Cash flow, Working capital, Inventory, infographic, business advice, inventory turnover ratio, stock, stock control

A couple of years ago the JPAbusiness team facilitated the sale of a strong, independent business involved in import and distribution.

It was a well-known, independent brand that had been established for well over 50 years and had solid bottom-line performance.

Unfortunately, when it came time to exit the business it soon became apparent there was too much inventory (stock on hand).

We negotiated a price for the goodwill, plant and equipment etc, based on a multiple of Business Maintainable Earnings (BME), which is essentially the cash flow of the business. Then it was time to address the stock value.

Topics: Selling your business, Advice, Cash flow, Case study, Inventory, business advice, selling a business, inventory turnover ratio, cash flow management, business sale