| The items that sit on your shelves and floor | | | | than it seems. |
| represent a big capital expense. In truth, it likely | | | | First, you need to identify the percentage of rent |
| represents one of the biggest expense categories on | | | | and property taxes that may be ascribed to your |
| your books (though technically, it appears as an | | | | storage area. Second, you must do the same for |
| asset). Many independent retailers realize that | | | | utilities, insurance, and upkeep items. Third, you need |
| carrying their inventory is expensive. However, they | | | | to include the foregone lease that you would |
| realize it in the area of the money they have paid to | | | | otherwise receive from a renter for a similar space. |
| their sellers. The true value of your retail inventory | | | | Determining handling costs for your goods can be |
| could be far bigger than you realize. | | | | similarly challenging. This cost should represent the |
| In this article, we'll set aside the obvious expenses | | | | time that your staff spend receiving, sorting, packing, |
| related to your merchandise and look more closely at | | | | and moving the stock to your floor. It should also |
| some ancillary costs. I can explain how financing, | | | | take under consideration any depreciation of |
| insurance, storage and handling, shrink and damage, | | | | appliances used toward its handling. And if you are |
| and missed opportunities are typically neglected, but | | | | financing that hardware through outside sources, it |
| can be incredibly pricey. | | | | becomes even more tricky to spot the true cost. |
| Expenses Related to Financing | | | | Shrinkage And Damage |
| Probabilities are, you're financing some of your | | | | Usually, you would write off any stock that was |
| inventory thru outside sources. Determining the price | | | | damaged while in your possession, or lost to shrink. |
| of that financing as it pertains to your merchandise | | | | However, calculating the value of the write-off can |
| may be complicated. For instance, suspect you're | | | | become cryptic if you and your staff have not |
| self-financing 50% of your stock and using an | | | | performed regular cycle counts. If certain products |
| external line of credit to finance the leftover half. In | | | | have a greater than average turnover rate, you |
| this case, it is fairly simple to identify interest | | | | should be undertaking more frequent cycle counts. |
| fees.suspect you are using your credit line to finance | | | | If you do not perform these counts, you'll finish up |
| other items,e.g. receivables or payroll. If that's the | | | | increasing write-offs from shrink and damage that |
| case, working out the finance charges that are due | | | | you could have taken earlier. That further muddies |
| to your merchandise is more difficult. Given that you | | | | the waters and makes it hard to identify the true |
| should be aware about the true value of carrying | | | | cost of carrying your inventory. |
| your inventory, the anomaly is cryptic. | | | | The capital that you have invested in your |
| Insuring Your Stock | | | | merchandise only represents the beginning of your |
| Insurance for your retail stock is far simpler to | | | | stock's carrying cost. Financing, insurance, storage and |
| calculate than financing fees. It is typically based | | | | handling, shrink and damage all contribute to that |
| mostly on the total value of the items. Oddly, many | | | | cost. What's more, you must consider the value of |
| tiny shops neglect this cost when identifying their | | | | opportunity costs from having your limited cash flow |
| inventory's carrying cost. | | | | 'trapped' in unproductive inventory. That capital may |
| Storage And Handling costs | | | | be employed productively some place else. As an |
| Ideally, as it's so costly to hold, you would have as | | | | independent retailer, it's vital that you maximize your |
| little stock on hand as possible. Having said that, you | | | | limited cash flow by tightening your stock. That is the |
| may have a need to store your products in a new | | | | key to having the flexibility to explore other |
| stockroom or warehouse. Figuring out the carrying | | | | rewarding prospects. |
| cost related to storage may be more complicated | | | | |