Inventory Is Eating Your Profit: How to Know If It’s a Financial Systems Problem
Short Answer
If inventory distortions are causing margin swings, cash shortages, or reporting inconsistencies, the issue is often not purchasing.
It's financial systems and oversight.
Why Inventory Distorts Profit
Inventory affects:
- Cash flow
- Cost of goods sold
- Gross margin
- Tax liability
Improper tracking leads to false profitability signals.
1. Your Gross Margin Fluctuates Monthly Without Clear Reason
If margins swing without:
- Price changes
- Supplier shifts
- Demand shifts
Your costing method may be flawed.
2. Dead Stock Is Increasing
Dead inventory:
- Locks up capital
- Reduces warehouse efficiency
- Distorts reporting
Without regular turnover analysis, cash stagnates.
3. Inventory Shrinkage Is Unexplained
Shrinkage beyond industry norms may indicate:
- Weak controls
- Poor reconciliation
- System gaps
This is a controller-level issue.
4. Purchasing Is Not Forecast-Driven
Ordering based on instinct instead of:
- Demand forecasting
- Sales velocity
- Margin modeling
Creates financial instability.
5. Inventory Growth Is Outpacing Revenue Growth
If inventory grows faster than revenue, working capital pressure increases.
This is often invisible without structured reporting.
What Inventory Consulting Actually Does
Professional inventory consulting:
- Analyzes turnover ratios
- Identifies dead stock
- Aligns purchasing with forecast
- Improves costing accuracy
- Reduces working capital drag
Often paired with controller or CFO oversight.
When to Bring in Financial Oversight
Consider inventory consulting if:
- Revenue exceeds $1M
- You carry significant physical product
- Margins feel inconsistent
- Cash is tight despite sales
Frequently Asked Questions
How does inventory affect cash flow?
Inventory purchases require upfront cash before revenue is realized, reducing liquidity.
What is a healthy inventory turnover ratio?
It varies by industry, but declining turnover often signals excess stock or weak demand forecasting.
Should inventory strategy be handled by accounting?
It should be aligned with accounting, operations, and financial leadership.
Next Step
If inventory is impacting margins or cash flow, schedule a call to be matched with a BELAY expert who can review your structured inventory and financial systems.