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Creating Positive Cashflow With An Open To Buy By Tom Shay
 

Creating Positive Cashflow With An Open To Buy By Tom Shay

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Inventory control for small business utilizing an Excel chart created by Tom Shay www.profitsplus.org

Inventory control for small business utilizing an Excel chart created by Tom Shay www.profitsplus.org

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    Creating Positive Cashflow With An Open To Buy By Tom Shay Creating Positive Cashflow With An Open To Buy By Tom Shay Presentation Transcript

    • Tom Shay, CSP Certified Speaking Professional
    • Why?
      • Why should you have an “open to buy”?
      www.profitsplus.org
    • Reason #1
      • If you end the season with plenty of inventory on hand, where do you get the money to purchase new inventory for the coming season?
      www.profitsplus.org
    • www.profitsplus.org Cash: $1,500.00 Inventory $275,654.73 Inventory turns: 3.51
    • Inventory turn:
      • Cost of goods sold
      • ÷
      • average inventory on hand
      • Inventory turn
      www.profitsplus.org
    • www.profitsplus.org Cash: $16,500.00 Inventory $260,654.73 Inventory turns: 3.65
    • Reason #2
      • Which balance sheet would allow you to rest easier at night?
      • What is your average “cash on hand” at the end of the month?
      www.profitsplus.org
    • Reason #2
      • What is your average “inventory on hand” at the end of the month?
      • What was your turn rate for the last year?
      www.profitsplus.org Inventory
    • How many calculators?
      • One for each department/fineline that you want to track
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    • Comparing inventory to sales
      • What percentage of your annual sales occur each month?
      • How much inventory do you want on hand?
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    • www.profitsplus.org Sales by month
    • www.profitsplus.org Inventory by month
    • www.profitsplus.org Traditional Inventory & Sales
    • Why is it …
      • … that so often there is no relationship between sales and inventory?
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    • www.profitsplus.org Desired Inventory & Sales
    • Which works better for you?
      • Purchase inventory/supplies in bulk
      • Purchase inventory/supplies on a “as needed” basis
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    • www.profitsplus.org
    • www.profitsplus.org
      • Use the free “open to buy” template on the website
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    • www.profitsplus.org
    • 6 Step plan to create your “Open to Buy” chart
      • 1. Begin with your sales from the last 12 months.
      • 2. Enter on row three, your best sales estimates for the next 12 months.
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    • 6 Step plan to create your “Open to Buy” chart
      • 3. Enter on row 42, your estimate for your maintained gross margin.
      • 4. Enter on row 47, your desired inventory for the end of each month.
      www.profitsplus.org
    • 6 Step plan to create your “Open to Buy” chart
      • 5. Rows 5 through 37 are for entering your purchase orders.
        • Column B is for your purchase order number;
        • Column C is for the name of the vendor.
        • Column D – “E” for enter a number; “P” is a calculation.
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    • 6 Step plan to create your “Open to Buy” chart
      • 6. Enter on row 2 for January only, the amount of inventory you have on hand on December 31. The rest of row 2 will be calculated for you by the Excel template.
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    • The math is:
      • Row 38 will total all of the purchase orders written during the month.
      • It is “total inventory purchased” and is the sum of rows 5 through 37.
      www.profitsplus.org
    • The math is:
      • As you enter purchase orders, vendor names and order amounts,
      • Line 49 will tell how much you have available to spend. It is the result of row 47 minus row 45.
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    • The math is:
      • Row 40 is “Total inventory available for sale” – sum of rows 2 and 38.
      • Row 43 (COGS) is “Cost of Goods Sold” and is result of row 3 multiplied by reverse of row 42. (If gross margin in row 42 is 35%, then row 3 is multiplied by .65)
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    • The math is:
      • Row 45 (Actual inventory) is the “actual inventory at the end of the month” and is the result of row 2 plus row 38, minus row 43.
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    • Scenarios that happen:
      • Like a checkbook, balances carry forward from one month to the next.
      • Both positive and negative!
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    • What if:
      • Sales increase
      • Sales decrease
      • You under spend one month
      • You over spend one month
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    • What if:
      • Your margin increases
      • Your margin decreases
      • You take mark downs
      • You take additional mark ups
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    • What if:
      • You decide you want to increase inventory
      • You decide you want to decrease inventory
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    • Why utilize an “open to buy”?
      • 54% of the businesses that fail, do so because of a lack of cash!
      • When you have cash, you have options in your business!
      www.profitsplus.org
    • Why utilize an “open to buy”?
      • Options allow you to take advantage of opportunities, as well as change strategy in case of mistakes.
      • You find yourself working on your business instead of always working in your business.
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    • www.profitsplus.org If you are always putting out fires in your business, y ou may be the person carrying the matches!
    • Final Note www.profitsplus.org
      • This presentation will be specialized to your industry and your attendees’ specific needs.
      • For more information about having Tom present for you, contact us at (727)464-2182 or visit our website: www.profitsplus.org