Why do I need to worry if I have high inventory? And why is that not a good thing when I look at my balance sheet?
Do you actually have high inventory, or does your balance sheet just say you have high inventory?
If the value on your balance sheet does not accurately represent the value of your stock, then we definitely have a problem.
1. If you actually have lots of inventory that isn’t turning over, then, depending on your industry, this could present a cash flow problem. You spent a bunch of money on things your company is supposed to sell, but now the product isn’t moving. It would be a good idea to review your reports with your management accounting professional (bookkeeper) and find out how you can turn that inventory into profit.
2. If you have a high inventory on your balance sheet but do not actually have the stock on hand in real life, it means that a big mistake was made in your books somewhere along the way. You’re going to want to review your books closely with a good bookkeeper, fix the issues, and learn how to do it correctly moving forward.
Ingrid Edstrom is a bookkeeping nerd and CEO of the award winning bookkeeping firm, Polymath LLC.