We Almost Went Bankrupt This Year! Don’t Do This ❌

We Almost Went Bankrupt This Year! Don’t Do This ❌

As an inventory heavy business, scaling so fast can almost run you into the ground.

In 2022, Frost Buddy was very close to bankruptcy mainly due to inexperience in inventory management. We ordered wayyy to much & it nearly took us out completely. We were one year in, had just gone from $1M revenue to $12M & we kept selling out. So that’s when we decided to “plan for the future growth” & order 1M units in less than 3 months of time 😭 At the time, we thought it was the right amount for 2022, but we quickly realized we made a massive mistake.

Too little of inventory is ALWAYS better than way too much!

How To Not Make The Same Mistake As Us

If I had someone to teach me this, it probably would have saved me close to $500K in 2022 alone…

So here’s why…when you are sitting on way too much inventory, a couple of things happen to your disadvantage.

So here is why this is so important. Inventory management is hard & especially when you are growing fast. It can be easy to put numbers in a spreadsheet and almost guess how much to order. But if you guess wrong, you put yourself out of business.

First was our interest payments. We have a large line of credit to finance inventory. Because we had it maxed out, we owed the bank $50K of interest every month. Had we not been over-extended, that payment would be maybe $5-10K / mo. The next issue is storage fees. If you’re using a 3PL like us, if you aren’t efficient with your inventory coming in and out, you will get killed. So for an entire year, we had another $50K / mo in storage fees because we had soooo much just sitting there. Had we owned the warehouse, our cost would be roughly $10K / mo. For that square footage. Most 3PLs are a rip off with that. The final burden this put on us was stale inventory, a company’s worst nightmare. When you look on your balance sheet, at the assets, you put the retail value of that inventory. The issue is, if one color or SKU stops moving, or you have too much, now you have to discount it. The value on your balance sheet is heavily skewed because you won’t actually get retail value. Worst case scenario, you have to liquidate for pennies on the dollar, can’t pay off your debt, & boom, bankruptcy here we come.

Luckily for you, I just went through all of this & I can help you stay out of this position that I was in!

#1. Create An Inventory Schedule Based On 90 Day Sales

This will create an efficient inventory system generating much more profit.

If you have a COO, they should be doing the following:

• Find out how long product takes from order submitted to your supplier all the way to your warehouse. Is it 30 days, 60, 90, etc.

• However long it takes, that is their benchmark for reorder

• Run analysis on “days left of inventory” on each product

• Whichever products are below the threshold, order 60-90 days worth based on current rate of daily unit sales volume

This will keep your inventory lean & efficient. If you sell out of a certain product, that’s okay. Put a “notify me when available” sign up form on the page. Keeping supply thinner always creates more demand.

#2. Run Weekly Product Analysis To Find A,B, & C Products

We need to stay away from stale inventory to keep our line of credit, discounting, & storage down.

We have a ton of SKUs at Frost Buddy now, so we have started looking at individual sales volume of each SKU very closely. Based on units sold on a 90 day & year to date snapshot, we break product up into A,B, & C categories.

• A: These are top sellers. Products that we can have a little too many of. These probably make up 60-70% of your revenue & are your main profit drivers.

• B: These are products that sell okay, but we have too many of. We won’t discontinue them, but we need these colors / products to have very little inventory & if they sell out, that’s better than having too many.

• C: These are stale. Get rid of. They aren’t moving the needle. We may need to discount the hell out of them & try and breakeven so we can get cash back. These are company killers & we want as few as possible. Identify these quickly, learn from it, & move on!

Once you start looking at these trends weekly, you can identify a path to become more profitable. You can also start to find more & more A products quicker so that you can keep products that are only moving the needle for you.

#3. New Products / Colors : Always Test Order First!

Think you have a homerun product or color & you are confident it will sell well? I don’t care. Order the minimum quantity and you can thank me later.

Here is how I do new product launches or new color launches now:

• For new product, 8K-10K units, roughly 7-8 colors

• For new colors, only 1K-2K units max

• Pre-Sell as many as possible 15-20 days out from launch day

• If I sell out in 5 days, AMAZING

• If it’s a flop, I still sell out in 90 days normally & I move on

Always let your customers or the market tell you what works. I have launched products that I thought would kill it, & then got stuck for a year with them. But now, I just launched our new To-Go Buddy & I pre-sold every unit before it arrived.

Now I add a sign up form for notification of new release & I build hype!

The key difference is I have straight profit from this system. No storage. No interest payments killing me. No stale inventory!

Inventory heavy businesses can get extremely difficult because it’s so capital intensive & it can be really hard to get it right.

You will never get it right 100% and that’s okay!

Just use the steps above when you are planning & strategizing and you will set yourself up for major success!

You get better at it with time & experience.

If you want more tips on scaling your business or fighting the hard fight that entrepreneurship is, please hit that subscribe or go check me out on Tik Tok, Linkedin, or Twitter!

Good Luck 😊

Brock Mammoser