Covering the cost of buying new stock

It’s easy to look at the money coming into your business account and think you’ve got more available to spend than you actually do. 

One of the first steps you can take is putting aside the GST you have received into a separate account so that you have that ready to pay as part of your quarterly BAS.

One of the other really important things that, unfortunately, we see many business owners doing is not putting aside money from sales to purchase stock or “Cost of Goods”.

Looking at your profit and loss report will tell you what percentage of your sales revenue is made up of the cost of stock or “Cost of Goods” needed to sell your product. If, for example, it’s 40%, then to ensure you have sufficient funds to repurchase stock to sell, or to buy supplies to create the goods you are selling, you would absolutely need to be putting aside 40% of every dollar you receive in sales income when you receive it.

If you’re a café and can’t afford to buy your beans or your milk, or a clothes retailer that can’t afford to buy new product to sell, sales will slow down or even stop, and you are then in a very precarious position, with the business unable to continue. This can often be when business owners take out high-interest loans to cover these costs, but this just creates a bigger hole.

Plan to put aside your “Cost of Goods” every time you reconcile into a separate account and feel the stress reduce, your cash flow increase and build financial control and resilience.

As Small Business Financial Counsellors, we can assist you in putting together this strategy, not just on Cost of Goods, but across those bills that we find hard to cover each month.