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.