Why This Matters
Managing inventory is a balancing act for distilleries, wineries, and breweries. Stocking too much ties up cash that could be used elsewhere, while stocking too little means you risk running out of key ingredients or packaging materials, potentially disrupting production and sales.
At the same time, financial planning often takes a back seat to day to day operations. Many business owners end up reacting to cash flow rather than proactively managing it. This can lead to:
- Cash flow stress – where inventory purchases drain cash, making it harder to cover tax, wages or owner’s pay.
- Inconsistent stock availability – causing production delays or missed sales opportunities.
- Unclear financial decision making – not knowing when to order more stock or whether you can afford to.
The Profit First methodology helps shift this mindset by ensuring inventory purchases align with cash flow priorities. Rather than buying stock first and figuring out finances later, you’ll have a system where cash flow drives purchasing decisions, ensuring your business stays profitable, stable and stress free.
This guide will show you how to integrate inventory management with financial planning using Profit First, so you can keep stock levels optimised without jeopardising cash flow or profitability.
Step 1: Assess Your Current Inventory and Financial Position
Before making any changes, you need to understand where you currently stand. This means taking stock of both your inventory and your financial position to identify potential cash flow risks and opportunities.
Evaluate Your Inventory Position
- Identify slow moving stock that is tying up cash.
- Review sales data to understand seasonal trends and demand fluctuations.
- Use inventory management software if available to track stock levels in real time.
If you have stock that sits for months without turning over, that is cash sitting idle. Understanding your inventory turnover rate will help you make better purchasing decisions and avoid over investing in stock that does not generate revenue quickly enough.
Check Your Financial Position
- Review your Profit First allocations—how much of your revenue is currently going toward inventory purchases?
- Compare inventory spending against profitability goals. Is stock eating into cash flow that should be allocated elsewhere?
Inventory should be a planned expense, not something that dictates how much cash is left for tax, wages or profit. If inventory purchases regularly strain your cash flow, this is a sign that adjustments are needed.
📌 Pro Tip: If you do not already have a dedicated Inventory Account in your Profit First system, consider setting one up. This allows you to separate inventory funds from general operating expenses, ensuring stock purchases do not disrupt cash flow.
🔗 Need more background on how Profit First works? Check out our guide on Profit First Accounting to understand how this system can help structure your finances for profitability.
Step 2: Align Inventory Purchases with Profit First Allocations
A common mistake small business owners make is letting inventory purchases dictate cash flow, rather than the other way around. Profit First flips this approach by ensuring that revenue is first allocated to profit, tax, and owner’s pay, with inventory purchases coming from what is available in the operating budget.
By aligning stock purchases with Profit First allocations, you can:
- Keep cash flow predictable by ensuring inventory spending fits within a structured financial plan.
- Avoid overspending on stock at the expense of wages, tax, or profit.
- Build funds for strategic bulk purchases that improve margins.
Managing Inventory Costs with Profit First
- Set a clear inventory budget based on what remains after Profit First allocations.
- Instead of large, irregular purchases, consider smaller, more frequent stock orders that align with cash flow cycles.
- Use an Inventory Account within your Profit First system to separate stock purchasing funds from operating expenses.
Using Profit First to Fund Bulk Purchases for Better Margins
In some cases, buying in bulk leads to better pricing, lower per unit costs, and improved margins. However, large upfront purchases can strain cash flow if not planned correctly.
Profit First provides a structured way to set aside funds over time so that bulk inventory purchases do not disrupt day to day cash flow.
Here’s how:
- Create a “Bulk Inventory Fund” as a sub account in your Profit First setup.
- Calculate the funds required for bulk or lumpy stock purchases, then compare this amount to revenue to determine a suitable percentage allocation.
- Use this account when you’re ready to make larger purchases, ensuring that stock investments are covered by available funds rather than credit or operating cash.
📌 Pro Tip: Allocating a set percentage of revenue to an inventory fund throughout the year means you always have cash available when you need it. This ensures bulk purchases are made when they benefit your business most, rather than being dictated by short term cash flow fluctuations.
Step 3: Use Inventory Software to Track and Plan Purchases
Manual tracking and gut feel ordering can lead to costly inventory mistakes. If you are not monitoring stock levels accurately, you risk over purchasing, tying up cash in slow moving stock, or under purchasing, leading to production delays and lost sales.
This is where inventory management software becomes a game changer.
Why Inventory Software Matters
Using the right tools helps you:
- Track stock in real time so you always know what you have on hand.
- Forecast demand based on sales history, ensuring you buy stock at the right time.
- Align purchases with cash flow by integrating stock management with your accounting system.
When inventory software is connected to your financial systems, you gain clear visibility over your stock levels and cash position, making it easier to make profitable purchasing decisions.
Integrating Inventory Management with Profit First
To ensure inventory spending aligns with Profit First principles, use your software to:
- Set stock purchasing limits based on available funds in your Inventory Account.
- Review sales trends to adjust order quantities without over investing in stock.
- Time purchases strategically so they fit within your Profit First cash flow allocations.
By structuring stock orders around data driven decisions, you avoid reactive spending and instead plan purchases with both cash flow and profitability in mind.
📌 Pro Tip: Choosing the right inventory software depends on the size and complexity of your business. Refresh Accounting’s guide on inventory management software can help you find a system that fits your needs.
Step 4: Time Your Inventory Purchases Strategically
When you purchase stock is just as important as how much you buy. Poorly timed inventory purchases can create cash flow bottlenecks, leaving you short when you need to cover wages, tax or other expenses.
Rather than reacting to low stock levels, a Profit First approach ensures that purchases are planned around cash flow cycles, keeping your business financially stable while maintaining the stock you need.
Use Profit First to Maintain Steady Inventory Funds
Profit First operates on consistent percentage allocations, which means you are setting aside funds for inventory purchases throughout the year, rather than relying on seasonal spikes in revenue.
- Your Inventory Account accumulates cash over time, ensuring stock purchases are covered when needed.
- This prevents large, unpredictable stock expenses from disrupting cash flow.
- Instead of adjusting allocations, focus on timing purchases to fit within the available balance.
Leverage Supplier Payment Terms
Many suppliers offer flexible payment options that can help align purchases with cash flow:
- Negotiate extended payment terms so inventory costs are spread over multiple months.
- Align supplier payments with sales cycles, ensuring you are using revenue from sold stock to pay for new inventory.
- Explore bulk order discounts where it makes sense, but only if you have allocated funds in your Inventory Account.
📌 Pro Tip: If you have excess stock, focus on using what you already have before making additional purchases. Adjust your production schedule to prioritise materials or ingredients that are sitting in stock, ensuring you are not tying up cash in unnecessary new orders. This helps maintain cash flow without disrupting your ability to meet demand.
Step 5: Monitor, Adjust, and Review Regularly
Once you have integrated inventory management with financial planning, the next step is to keep a close eye on the numbers. Your business will evolve, and so will your stock needs, so regular reviews ensure that your system remains effective.
Track Inventory Turnover and Cash Flow
- Monitor how quickly stock is selling to avoid overstocking or understocking.
- Compare inventory spending with your Profit First allocations to ensure profitability.
- Check if inventory costs are creeping up—are supplier prices increasing, or are you holding too much stock?
Tracking these factors helps identify where adjustments may be needed before they start affecting cash flow.
Review and Adjust Quarterly
Your inventory strategy should be reassessed every quarter to ensure it is still aligned with your financial goals. Key areas to review include:
- Inventory turnover rates—Are you selling through stock at the expected pace?
- Profit First allocations—Is your Inventory Account funding purchases effectively?
- Supplier terms—Are there opportunities to renegotiate for better pricing or payment flexibility?
If cash is consistently tight, it may be time to revisit your purchasing habits and adjust order quantities or timing to maintain financial stability.
📌 Pro Tip: Regularly updating your financial plan ensures that inventory does not eat into your profit margins. Small, ongoing adjustments keep stock levels optimised and cash flow steady.
Final Thoughts
Integrating inventory management with financial planning using Profit First allows you to keep your business profitable without over-investing in stock. By setting aside funds consistently and timing purchases strategically, you can ensure that inventory supports your cash flow instead of draining it.
The key is to align inventory spending with available cash, rather than letting stock purchases dictate how much money is left for tax, wages, or profit. With the right approach, you can maintain healthy stock levels, avoid financial strain, and make better purchasing decisions that improve margins over time.
Next Steps
- Review your current stock and financial position—Identify slow-moving stock and assess whether your inventory spending aligns with your Profit First allocations.
- Ensure inventory purchases fit within Profit First allocations—If needed, set up an Inventory Account to keep stock purchases separate from other expenses.
- Use inventory software to track stock and forecast demand—Having real-time data helps prevent over-purchasing and keeps cash flow steady.
- Time purchases to fit within available cash—Make stock purchases based on what is in your Inventory Account, not just when you think you need more stock.
- Monitor and adjust regularly—Review your inventory turnover, cash flow, and supplier agreements every quarter to keep your system optimised.
📩 Need help applying Profit First to your inventory strategy? Book a call with me to get started!
