The Effects of Inventory Forecasting on Budgeting

I’m always on the hunt for relevant info and I loved this - one of the best articles I’ve seen on this topic for a while. Here are a few paragraphs as a taster...

Inventory is a necessary expense and the foundation of future sales. The amount you spend on inventory is part of your budget because you must come up with the funds to buy wholesale product and raw materials, which in turn bring in revenue so you can replenish the stock you deplete. Inventory forecasting should be based on past sales patterns as well as adjustments for current developments such as aggressive marketing campaigns.

Inventory Expense

Inventory costs money, and your budget forecasting process should take into account the outlay necessary to have sufficient stock on hand. Suppliers who extend terms, allowing lag time between when you purchase and when you pay, provide you with additional budgeting flexibility because you don't have to treat their invoices as immediate expenses. If you turn around your inventory quickly, moving it before the invoice is due, you even may be able to pay for it directly out of funds you have received from selling it.

Inventory Potential

When there is ongoing customer demand, inventory levels increase revenue potential. You cannot sell product you don't have, and when you are certain you will be able to sell a specific volume, it is worth incurring debt to make sure you have sufficient stock on hand. Businesses rarely can predict exactly how much they will sell, but many companies experience predictable fluctuations, such as seasonal patterns. The inventory you buy affects budget forecasting by increasing potential for incoming revenue. 

Pretty valuable stuff, I’m sure you’ll agree! Why not check out the whole article here and share your thoughts with me afterwards: call (0429) 011-071 or email me at [email protected].

To you success,

Ian