How to use “Open to Buy” planning to increase your cashflow!

Have you too much money tied up in stock that is not moving fast enough? Is there a better way to manage your stock levels? Yes there is.

What exactly is open to buy planning?

 Is there a secret to open to buy planning?

The secret is to have a good stock management system in place that allows you to have the right amount of the right stock at the right time.

How do you do that?

The goal of good stock management is to maintain an appropriate level of stock for the sales that your store is achieving. What you want to achieve is sufficient combinations of stock, when sales are slow not to miss possible sales while, at the same time you don’t have too much stock that you are draining your cashflow. When your sales pick up, you want to be able to increase your stock levels to support the increased sales without over buying.

Open to buy planning tells you how much stock should be on hand at the beginning of any given month and how much new stock should be coming in to maintain your ideal stock level.

Follow these easy 4 steps to create a simple but effective open to buy system for your shop.

Step 1: Plan your annual sales and markdowns. This is the most important step in this process because your stock levels are derived from the planned sales.

Step 2: Plan your average stock, turn and beginning of the month stock holding. You will need to figure what stock levels and turnover rates are appropriate for your business. Stock that is turning too slow will leave you with high stock level, higher markdown and low cash flow. On the other hand if your stock is turning too fast, your planned stock levels will be too low which will result in missed sales and lead to poor customer service due to out of stocks.

Step 3: Calculate an open to buy budget for every month. Once you have planned sales and stocks, you can calculate how much stock to receive. This is how much you have open to buy each month. Begin with monthly opening stock figure (BOM) minus sales, minus markdowns. Compare the result to your planned end of month (EOM) stock levels and the differences is your open to buy budget.

The difference is how much stock you should receive during that month. See example below.

Step 4: Use this plan to monitor your sales, stock levels and purchases for good stock management. If your sales slow down your stock levels are likely to increase. To stay on plan you will have to buy less next month. Maybe you will take extra markdowns or cancel orders or maybe all three. On the other hand if sales are increasing You will need to buy more in order to stay on plan.

Adjusting monthly allows you to keep your stock levels at Optimum levels for your business.

Note: This is usually done a Quarter at a time and when planning, diary/sales calendar should be checked for anomalies that may have pushed or decreased sales, exceptionally warm weather, roadworks on the main St  etc … Some businesses factor in a contingency budget which carries in from one period to the other eg need to buy extra shorts and vests due to weather, hot drinks need more investment cause it’s so cold, contingency allows this to be invested in without affecting open to buy policy .

Start planning today. Need help to do this? Book your free 30 minutes Consultation with me today www.orlamcdonnell.com/contact/