Relationship between Cashflow, Proper Inventory Management, and Profitability

It is a very obvious fact that cashflow, proper inventory management, and profitability are interweaved. That means you will put your business at risk when you fail to manage any of these three factors. It is also important to note that the relationship between cashflow and profitability is significantly determined by the amount of inventory stock you manage and your inventory turnover.


Effective inventory control always brings cashflow exactly the same way bad stock management leads to excessive costs. The important thing here to remember is that there is no way you can avoid holding inventory. Think this way, failing to have enough on-hand inventory means you risk stock-outs. This often leads to reduced customer satisfaction, lost sales and potential loss of future sales simultaneously if you are holding too much inventory stock ends up with blocking your money that could have been used for key areas of your business.


One of the key measures of how good your business is doing can be measure by Inventory Turnover. It also takes into account the turnover ratio which mostly determines by the number of times you buy and sell your whole inventory stock within each financial year. High inventory turnover ratio results in greater cashflow and leads to huge profit at the end, without having the additional routine cost and by lowing down inventory holding cost even.


Let’s talk about Point of Sale systems, PetroTech POS can make your job easy by keeping track of your inventory but that is not enough. You must have a little bit knowledge about the three most famous accounting methods, FIFO, LIFO and the weighted average method out of these three, you have to define whichever is suitable for you depending upon the type of business you are in to, the area of business and most importantly the type of stock you are dealing with. Be sure to adjust the figure each time you bring in more inventory.


There are some other factors too that have little to do with cashflow and inventory management which can affect your profit margins. One such factor is customer satisfaction. That way you treat and handle your customers matter more than you may ever know. For a business the biggest assets are satisfied and happy customers. Be flawless here as you are with the inventory and cashflow management so that you can greatly satisfy your valuable supporters. The end result is always something you can smile about each time you look at your business account.

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