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Updated: August 31st, 2023
For ecommerce businesses and retail stores, procuring and managing holiday inventory takes a massive effort—and a lot of strategy. Not only do you need to obtain enough working capital to purchase and store your inventory, you also need to adopt smart inventory management techniques.
If your business relies on inventory for the holidays, here’s what you need to know to ensure a productive, profitable holiday season.
You need a sizable chunk of cash to purchase holiday inventory. In addition to buying the materials or products themselves, you also have to pay for inventory storage, extra labor help, and packaging and shipping.
Unless you have excess cash flow, chances are you’ll need a bit of help securing your inventory. Financing inventory can give you the capital to pay for large inventory orders and associated costs upfront—without tying up all your business’s cash. Here are three common inventory financing options to consider:
With a larger borrowing amount and longer repayment period, a business term loan can be a good financing option for purchasing holiday inventory in bulk. If you know you need to make a large order ahead of the holiday season to get a discount from your supplier, a term loan can help. You’ll get the money you need upfront, and have enough time to pay off your loan without immediately dipping into all your holiday sales revenue. However, depending on the lender you choose for a term loan, it can take a while to apply, get approved, and receive your funds.
A business line of credit is a great short-term solution to financing your holiday inventory. A line of credit can be particularly helpful if you’re not sure how much holiday inventory you’ll need. As long as you bring your balance back down to zero, you can dip into your line of credit multiple times during the holidays.
You may need to purchase backup stock, replenish your inventory at the last minute, or hire extra workers on short notice. However, it’s important to remember that if you don’t pay off your line of credit in full, you can rack up debt quickly in interest fees.
Another type of short-term financing, a merchant cash advance (MCA) can be a helpful way to finance holiday inventory if you need cash fast (and don’t necessarily have a great credit score). With an MCA, you borrow against your future credit card receipts, which can make repayments unpredictable. MCAs also typically have high interest rates, so your holiday inventory may end up costing you significantly more money than you anticipated.
Keep the following guidelines in mind when considering inventory financing for the holidays:
Managing holiday inventory requires extra foresight and strategy. Here are a few essential practices to adopt:
It’s critical to reach out to your suppliers a few months before the holiday season. Not only do you want to score the best possible prices for your inventory, you also want to stock your shelves to coincide with the spike in customer demand. The earlier you order your inventory, the more time you have to plan holiday marketing campaigns, product drops, and promotions.
When you talk with your suppliers, be clear about how much inventory you need and make sure you get an accurate estimated delivery date.
Maximizing your holiday sales comes down to ordering the right amount of inventory. Having a surplus can lead to wasted money and dead stock, while under-ordering can cause you to miss out on sales and disappoint excited customers.
The key to figuring out how much inventory to order is reviewing your business’s financial and product data from the past several holiday seasons. Look back through your records and sales orders to assess total sale volume, individual SKU performance, number and types of returns, and frequency of restocks. Knowing how much inventory you went through and which products were top sellers gives you a better idea of what to order—and in what quantities.
Don’t forget to account for customer shopping trends and external factors—like a spike in online ordering due to COVID-19—that can potentially affect your holiday sales.
If you don’t already have inventory management software, or if you’re not happy with the platform you currently use, the holiday season is the perfect time to make a change. Cloud-based inventory software (like Square, QuickBooks, and Salesforce) automatically updates your business’s sales, tracks stock levels, and analyzes SKU performances, saving you time and hassle. Plus, with more details and figures to work with, you can make more informed decisions around product promotions, restocking, or inventory reshuffling.
Even with inventory software, it’s still important to regularly conduct inventory audits throughout the holiday season to ensure your financial records match your inventory counts. Audits are also an opportunity to check that you’re on track with your seasonal sales and revenue goals. You may want to perform spot-check audits—where you count one or two high-selling products—once a week leading up to and during the holidays.
It’s also crucial to set up a system for doing quality control (QC) checks. Depending on your products and inventory turnover, you could designate a team of workers to do QC checks once a week, or set up a daily check at every stage of production—from manufacturing to shipping.
Before you even start your holiday selling, take the time to create a game plan for replenishing your inventory in case stock gets low. It’s helpful to chat ahead of time with your vendors and suppliers about the possibility and process of placing last-minute orders. You should have a detailed list of the products you need, their count, and any special requests you might have on hand.
The other component is to have a financing plan in order. It’s a good idea to either talk to your loan provider ahead of time, sock away extra cash, or make sure you’re set up with a line of credit to use.
You may want to take a slightly different approach to holiday inventory management than regular inventory management. A few clever techniques can help you maximize your seasonal sales and revenue. Here are some strategies to consider:
Getting extra help behind the scenes can streamline inventory management during a notoriously chaotic time. Plan ahead in case you need to hire seasonal employees, like extra warehouse workers, delivery crew, or inventory consultants. You may want to:
The holidays are hectic, but it’s important to build in time for note-taking and strategy assessment. Gathering qualitative data alongside your inventory software data can set you up for success come next holiday season, helping you identify areas for improvement and brainstorm ways to generate more revenue.
During or after the holiday season, make sure you compile new customer reviews and feedback, note which vendors and suppliers you worked well with (or didn’t), and survey your employees for feedback and suggestions.
Smart holiday inventory management means more sales—and less stress—during a bustling time of year. To make the most of your business’s holiday season, make sure you plan ahead, implement efficient management systems, and stay adaptable.
Paige Smith is a content marketing writer who specializes in writing about the intersection of business, finance, and tech. Paige regularly writes for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.