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Turn old stock into new money

Thursday, July 26, 2007   By Mike Reddy


By Mike Reddy, business coach

Any business based on selling products usually winds up with a gradually mounting store of items that failed to sell and don't look like they ever will. Even service businesses can accumulate large amounts of leftover materials and other items for which there's no longer a use. This 'dead' inventory represents cash, and every day it's left to gather dust is just more profit whittled off your bottom line.

If you're a retailer you can always have a 'special' sale to get rid of old stock, but if it didn't sell before there's a good chance that it won't sell now, unless you're willing to take a substantial loss on the transactions. And if you're not a retailer you can always ask the company that sold them to you to take back unused materials, but even if they do, you can count on booking a significant loss. Surely there must be some better ways to deal with dead inventory than these!

Go slowly

The only way to get rid of old stock quickly is by heavy discounting and taking a quick loss. If you want better then the solution has to be a longer term process. It's a fact of life - old stock accumulates slowly, but to make any decent return on it it's going to need to leave your inventory at the same pace.

Find the underlying reasons for dead inventory

Review your dead inventory and ask yourself how it got there in the first place. It may well mean that your purchasing policies need a rethink, or that your system of estimating sales is getting the numbers consistently wrong. Think about what isn't there; what has sold quickly and never looked like being a slow mover. It may be time to review your product lines and make some deletions. There are important lessons for you to learn and apply to prevent any further buildup.

Analyse what you've got

Some parts of your dead inventory will be older and less saleable than other parts. Break dead inventory down into three categories, according to how quickly you believe it can be moved: (1) Salvageable; (2) Hopeful; and (3) Truly Deceased. Each of these categories will require a separate solution, and there will be recoverable value in some but probably not all of it.

Salvageable stock - This will likely be the stock you can move the quickest. It may be possible to bring it out into public view again with a big 'sale' or 'reduced' sign that highlights the former price and clearly points out the savings. If you don't want to try offering it once more, there may be another outlet nearby that sells a similar product and will take it off your hands for something close to the wholesale price you paid. The most important thing is to get rid of it quickly and turn it into cash before it becomes a Hopeful or Truly Deceased.

Hopeful stock -You can't be sure about this but you can still be hopeful of finding a buyer, either by drastically reducing its price and selling it yourself, or by finding another outlet that will take it off your hands quickly. It's probably salvageable but will take much longer and require more thought or effort to come up with someone to buy it. Don't waste too much more time trying to sell it; give it one more chance if you must, then get rid of it for whatever you can get.

Deceased stock- Into this basket goes the hula hoops, pet rocks and Rubik's cubes of your inventory. You might be lucky to catch a wave of nostalgia but it's highly unlikely and you simply need to get rid of it and stop it from cluttering up your storage space. It may be a mistake to expose this kind of merchandise to your regular customers, so your task becomes finding someone to take it for free. Charities and thrift shops are two possibilities, but do a search on the Internet and you might find someone who's still selling them and would be willing to pick up your deceased stock.

Mike Reddy is a Chartered Accountant, business coach and advisor helping businesses in Sydney, Melbourne, Brisbane and Gold Coast to easily increase their profits and cash flow. He is currently President of the North Sydney Chamber of Commerce, a Regional Councillor for Sydney North East and a member of the Institute of Chartered Accountants Sydney leadership team. As well as advising businesses, Mike presents business development seminars and webinars and is regularly contacted by the media to comment on small business matters. You can connect with him on Facebook, Twitter and Google+.