If you’re like most service business owners over the past year, you’ve been dealing with unprecedented supply chain problems.
For some, their revenues and profit have never been higher, but that can be disguising the fact that the business is flaring out like a match.
It’s getting harder and harder to keep certain parts and products in stock and it feels like there is an infinite amount of shipping containers floating off the ports and in the piers just waiting for someone to come unload them.
The pandemic has done a number on the supply chains and manufacturing and it doesn’t look like it’s ending any time soon.
This has probably wreaked havoc with your cash flow as your ability to service customers has been disrupted or delayed.
I’ve seen plenty of service business owners compensate for all this uncertainty by buying products in bulk and stocking up on inventory when they have the opportunity to buy.
This is a smart move in the short term since we can’t be too sure when the next shipment of what you need may come in, it could be 6 weeks or it could be 6 months, but if you’re not careful it could cost you big time in the long run.
Dealing With Supply Chain Crisis Uncertainty
Businesses thrive in consistent and reliable environments, unlike the current supply chain crisis.
You need to make hundreds of decisions as a service business owner about where to put your hard-earned money and what products to stock, when to buy them, and how you’re going to get them delivered.
To make those decisions, you need to have certain assumptions be true:
- That you can source those products in the first place.
- That the borders won’t close randomly, or hold up your shipment for an undetermined amount of time.
- That the laws won’t suddenly change around taxes or customs.
- That the cost of shipping stays relatively the same over time.
Most of those assumptions are true anymore, and this environment of uncertainty is leading business owners to stock up on inventory like people hoarded toilet paper and sanitizer at the beginning of 2020.
For the moment, having extra inventory on hand will help with delays and make sure you can keep servicing your customers, but there are some very important elements you need to be aware of.
First, tying up your capital in inventory takes your liquid assets and turns them into fixed assets. This means your cash flow is going to be affected, and you won’t as easily be able to absorb shocks to your income.
One big unforeseen expense could result in massive losses.
Cash flow is the buffer that shields your business from hard times.
If you’re barely scraping by each month and just covering your expenses because you’ve doubled the amount of money you have invested in inventory, you have much less margin for error.
The second is all that inventory comes with additional headaches and costs. You need to find a place to store everything safely and securely.
You also need a system that can expand to track, label, and manage everything without the costs scaling up too much.
And thirdly, you need to understand the tax implications of carrying all that additional inventory into 2022. Depending on where you operate, you could be unhappily surprised by a larger-than-expected tax bill.
So What’s Plan?
The supply chain issues are here to stay. We probably won’t see things go back to “normal” for at least another 6-12 months as demand keeps increasing and the global manufacturing system adapts to accommodate everything.
As of right now, keeping things in stock so you can stay in business should be your highest priority.
But you can’t just buy all willy nilly. Now, more than ever, you need a firm grasp of the important numbers in your business including your expenses, profit margins, labor costs, and you need to work with an accountant that can help you make decisions on how much you can afford.
Fortunately, we can help with that!
If you want to have a seasoned professional on your team that can help you through these difficult times, you can book your consultation right here and we’ll connect with you on how we can work together.
