For many growing cosmetic companies, the goal is to make your brand known and get yourself a great deal of shelf space in the most prominent beauty retailers. Of course, the cosmetic industry is such a competitive market. Sadly, it takes more than just a unique product and a powerful brand to make it a success. Managing the working capital of a growing cosmetic industry is essential, as even profitable cosmetic companies have found themselves folding due to cashflow issues.
So, how can you manage your working capital and improve your cashflow as a growing cosmetic business?
Six Ways Your Cosmetic Brand Can Manage Its Working Capital
- Get Inventory Smart
Managing your inventory is a huge learning curve for any growing business. However, it is important to be ahead of the game and keep your order levels optimal, so that you have the flexibility to make changes for any last-minute trends. Over-ordering can lead to a vast inventory which can be challenging to shift. With this in mind, it helps to spread out orders, perhaps splitting your order in two, rather than ordering everything in one go.
- Be ready
Your cashflow needs a constant state of monitoring to make sure you always have that safety net in place. This safety net means that you can be ready to go as soon as an order comes in. Having short turnaround times and products available can help to ensure you are not stretching your cashflow too thinly.
While you shouldn’t have a huge inventory, it is a good idea to keep your production techniques as streamlined and speedy as possible so that you can capitalise on last-minute orders.
- Strengthen your supplier network
It is vital to have a secure and reliable supplier network. However, you also need to make sure that you are getting your money’s worth. It is helpful to regularly review your supply network and other vendors in the market to ensure you are getting the best deal. It can be worthwhile discussing discounts with your vendors. Remember that the value may not be through the cheapest suppliers, but the ones that can deliver quickly, cheaply and reliably.
- Find ways to liquidate
If you find that your inventory is too large and you foresee cashflow issues ahead, then there are lots of ways you can release the cash that is tied up in your inventory. Consider product bundling, sales, or rebranding the items as impulse purchases. For cosmetics, this could be making travel-sized products that are more attractive at till points. It could also be giftbags and boxes where you combine your products. Another great option is beauty boxes which can be a great way to get rid of excess inventory.
- Monitor receivables and payments
While the focus may be on growing your business, it is essential to keep track of your receivables and payments. For healthy cashflow, you need to make sure you’ve collected your well-deserved funds from clients. This does mean you have to dedicate some time to monitor accounts and sending reminders when necessary.
- Meet debt obligation on-time
When your cashflow is stretched, it may seem tempting to put off paying your suppliers. However, delaying payments can damage a fragile supplier ecosystem. This can then have implications on your future orders with the suppliers. Furthermore, they may be less inclined to offer discounts or process your request speedily.
However, if you are struggling to make your cashflow stretch but need to meet your debt obligations, then alternative finance solutions such as supplier finance can really help. Supplier finance can ensure your vendors receive their payment on time, even if your debtors haven’t paid you.
To find out more about supplier finance and whether it is right for your cosmetic company, get in touch with GapCap.