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Inventory Is Cash and Cash Flow Is Not Revenue

Posted on 5/31/2016 by EDTP Coordinator in LAEDA News

Local business owners gathered at LAEDA Headquarters to learn how to manage inventory and cash flow, estimate expenses, increase your profits, industry ratios, management formulas and much more. Denise Keller, UCEDC Training & Technical Assistant Officer, shared her expertise on how to run a retail business, and manage your inventory and cash flow in ways to benefit your small business.

“Retail means that you are selling directly to individuals, thus startup costs depend on what you are selling and the venue,” explained Denise Keller. “When it comes to marketing materials, many people want to spend a lot of money on websites, but I do not recommend that because there are many variable and fixed expenses that not many business owners realize when going into their own business.” Variable expenses change according to sales levels and they are consistent for each dollar in sales. These kinds of expenses increase and decrease depending on production of your business. Inventory is a significant investment in retail, and it should be managed properly to meet your customers’ demands. It is important that you do not have excess inventory stored, because too much income tax is paid and does not become an asset on your balance sheet unless it is sold. Inventory is cash, thus it should be turned and the turnover ratios vary depending on the type of business it is. 
Denise Keller then discussed gross margins, which is the portion of each dollar of revenue after costs of sale and gross profit. “These formulas are important because you can determine what you have left to pay for operating expenses.” She also explained the process of cash flow and the cash cycle, and explained how every business has its own pattern. “Cash flow is not revenue; it is the difference between how much you are making and how much you are spending, as Denise Keller noted. 
When determining Break-Even, it is beneficial to make sure you are at the right level of cost and expense so that you can make a profit. You have to be in total control of your expenses; if not, you will face losing money. Denise Keller disclosed two websites that offer a range of valuation standards for different types of businesses. The first is Bizstats.com, which is free and it has very general statistics based on IRS business tax returns, and the second is IBIS world (.com), which is a paid service with excellent highly-specific industry stats and reports. As Denise Keller pointed out, “You want to give people more opportunities to be interested in buying, but you also need to know your customers really well.”
LAEDA hosts numerous seminars on a wide range of topics. Our next seminar, Financing Your Business, is the first in a series of seminars from LAEDA Women's Business Center. It is scheduled for Wednesday June 15, 2016 at 6:00 PM at LAEDA's offices. Click here to join our mailing list to learn about all of our upcoming seminars and events.