Sunday, December 29, 2013

The Crunch (Tradecraft)

December is a peculiar month from a company perspective. We have very high sales, roughly 50% higher than a standard month, which requires a bulk up of inventory. We also have the end of our fiscal year December 31st. The positive difference between our inventory on January 1st and December 31st is considered profit by the IRS, so the goal is to get back down to that January 1st number, while also serving customers during this high sales period. If you don't have the inventory when that "grandma money" flows through, that sale is lost forever.

The business can horde up on expenses, costs moved forward from Q1 of 2014 to the end of December, to reduce profits, but you can't hide inventory or distributions to investors. That stuff is unavoidable. We could change our fiscal year, but the hassle is probably bigger than what it takes to make inventory work out, and with an S-Corp, profits and losses are passed through to investors and their mid-April tax filing can't be deferred to another date.

To give you an idea of the crunch, on December 13th, we had $15,000 in extra inventory. That number was partially planned and partially my "open to buy" process losing fidelity over the months. On December 31st, the goal is to get that number at zero. That's something like $35,000 in sales that I'm essentially predicting will happen in an orderly fashion in a roughly two and a half week period. Will it happen? I think so. I don't know yet. I monitor it daily, hourly, and it looks strong. If we were unintentionally overstocked, I might be stuck with slow sellers, but most of this is inventory I've stocked intentionally for the holidays, which should be manageable.

It's also why you see us having a quick sale of slow sellers right after Christmas. Besides needing the inventory cleared out, the golden rule of sales is this: The best time to have a sale is when people have money.

So my primary job is to burn down $15K of stock in a two week period, while at the same time  ordering thousands of dollars of more inventory every day to keep the wheels greased until the new year, but without adding to the deficit. Each year I get a little bit better at this and I see it as an elegant dance, a ballet of commerce. I really enjoy this part of my job.

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