Money tied up in stock can be a huge restriction on the ability of your business to use money in other areas.
It is a difficult balance to ensure too much money is not tied up in stock but that you have enough stock to supply your customers. Not having enough stock, might result in lost trade and sales.
Sitting on stock can be sitting on money.
Money Tied Up In Stock
A factor on what stock levels should be kept, is how quickly and easily stock can be acquired. If it is easy and quick to get, you might keep your stock levels lower than other items.
A risk for certain businesses, will be stock becoming outdated. Will the stock retain its value or is there are risk the value or price will drop between purchase by your business and sale to the customer? Whilst it is tempting to buy larger amounts of stock if a lower unit cost is available for bulk purchase, is it a saving in the long run?
Of course, some businesses will have little or no stock at all. For example, a service business such as SV Legal does not have stock. The service and materials are provided electronically by the videos and downloads.