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Organising Finance to Buy Stock

By: Rachel Newcombe - Updated: 17 Oct 2012 | comments*Discuss
 
Finance Money Stock Buy Buying Purchase

When you’re running a craft business, you’ll inevitably need to have money available to buy stock or supplies. But business life doesn’t always run smoothly and unless you have a huge amount of available funding in your bank account, you need to tread carefully with your finances.

In an ideal world, all businesses would have a stash of funds available to buy new stock without a second thought. Sadly, this is far from reality and for the majority of businesses, cash flow can be an ongoing issue with changing uncertainties throughout the month.

Although you may have seen some new products that would be perfect, or stock you really must add to your craft repertoire, most businesses are not in the position of being able to make rash decisions and buy it, without doing their maths first.

Unfortunately, buying stock to generate money from more sales, yet not having enough money to justify buying it, is part of the ‘catch-22’ element of doing business. It involves a fine balancing act which, if you get it wrong, could land you in difficulties.

Keeping On Top Of Finance Issues

At the heart of any craft business, learning to manage cash flow should be a key priority. Realistically, for new craft businesses, it can take a while before you begin to break even, so managing your cash flow is critical. You need to keep careful records of:

  • All your outgoing payments (who you’re making payments to).
  • All your incoming payments (who is paying you).
  • How much money you currently have in your business bank account.
  • When other incoming or outgoing payments are due to be paid.
  • Any outstanding and overdue payments.

This can involve a lot of work and may be something you'll find beneficial for a bookkeeper or accountant to help with.

When To Buy New Stock?

Businesses need to buy new stock to satisfy the needs of their customers (not having stock could result in them going elsewhere) and to gain the potential of new sales, but it can be tricky working out the best time to purchase new stock.

Once you’ve worked out your finances, you should have a better idea of when your payments are due in and when others are due out. It sounds simple in essence, but ideally you should aim to buy stock when you have the finances available to pay for them.

In reality, this can be quite a tight juggling act, but as long as you’re clear about the supplier's payment terms (is payment due immediately, or after a certain amount of time?) and you are sure you can meet them, then you should go ahead with your purchase.

Delaying Payment To Suppliers

Delaying the payment you owe to your stock suppliers is not recommended. If you’re very short of cash and are desperate to buy new stock in order to make more money, just think of the frustration you’d feel if your customers were late paying you.

Although honesty may seem like a good policy, in the case of suppliers or wholesales, it’s not ideal to openly admit to suppliers that you haven’t got the required funds and can’t pay them on a certain week or month. Admitting this may give them the opportunity to decide they don’t want to business with you on a regular basis, which could result in the loss of an excellent supplier.

However, if finances are extremely tight and you’re really desperate, then delaying the payment is marginally better than admitting you have no money! Admittedly, your supplier may not agree to this option, but if they do, aim not to delay it for long, as they’re unlikely to take kindly to this.

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