Debt vs Equity Financing: What Small Business Owners Should Consider

Inventory management is one of the most common sources of stress for product-based businesses. It ties up cash and weighs down every part of the operation. By the time you notice the impact, it’s already affecting your margins and cash flow.

This blog breaks down common inventory challenges faced by e-commerce businesses. It offers straightforward answers to the questions we hear most often: from managing cash tied up in stock to deciding when to reorder or clear out slow movers. If you want to take control of your inventory, this post is for you.

Why is inventory management so difficult in e-commerce?

Running out of stock hurts sales, while holding too much inventory ties up your cash. Many e-commerce founders feel like they’re constantly trying to balance these two problems.

What makes it harder is that inventory planning often doesn’t show up clearly on your P&L. You can be profitable on paper and still have no money in the bank because your cash is sitting on a shelf. If you’ve ever looked around your warehouse and wondered why you still feel broke, this might be the reason.

Most founders didn’t start their business because they love inventory management. They’re product people, creatives, marketers, builders. So when decisions have to be made about how much to order, when to restock, or what to phase out, they often go with instinct. That can work for a while, especially in a fast-growing business, but over time the guesswork starts to fail.

Inventory is tricky because it’s both a cost and an asset. You can’t grow without it, but too much of it will slow you down. The goal is to find a middle ground where your money is moving, not sitting.

That starts with asking better questions. The rest of this guide is built around the ones we hear most often and the ones we wish more founders would ask sooner.

Struggling with inventory chaos? Schedule a free 15-minute intro call to get started with a personalized financial health check.

What is the true cost of carrying inventory?

When founders think about inventory cost, they usually focus on what they paid for it, but that is only part of the story. Inventory carries hidden costs that don’t show up immediately on your P&L, and those costs eat into your cash.

Every unsold item on your shelf is money you cannot use elsewhere. It is not just the purchase price, it includes storage fees, labor to move and count the stock, time spent managing it, and the opportunity cost of not being able to invest that cash elsewhere.

Inventory also makes forecasting more difficult. If not managed properly, you might show profit on paper that you did not actually make. In some cases, you might be paying taxes on sales that have not yet cleared your books.

This is why it is important to look beyond the inventory line on your financial statements. It is not just what you paid for it, it is everything it costs to hold it.

When you begin to think of inventory as a cash investment, your decision-making changes. You stop asking, “How much does this cost per unit?” and start asking, “How long will this tie up my cash?” That is a better question for a growing business.

Want to dive deeper into cash flow management? Check out our other resources on financial planning for e-commerce businesses.

How much inventory is too much?

There is no universal rule for the right amount of inventory. What matters most is whether your stock matches your sales volume and business model. Too little means missed sales. Too much means you’ve tied up cash that could be used elsewhere.

A good place to start is by calculating how many days of inventory you usually carry. For example, if you typically turn your stock every 60 days but now have enough to last 180 days, that’s a sign you might be holding too much. You can find a rough number by dividing your current inventory by your average daily sales.

Watch the trend over time. Inventory should rise when shipments arrive and fall as you sell through it. If your inventory keeps increasing but sales stay flat, that’s a warning sign. You could be buying too much or not selling enough.

Sometimes the problem is not the total amount but what inventory you have. Slow-moving products can take up space and cash even if your overall stock level looks okay. You don’t need a perfect ratio but you do need visibility. Being honest about what’s sitting too long is a good first step toward fixing it.

Not sure if your inventory levels are healthy? Get a personalized diagnostic with a free 15-minute intro call to assess your situation.

How can I tell which SKUs are actually profitable?

Start by cleaning up your books. Without good bookkeeping, you won’t be able to answer this question at all. The key is to set up your accounting so you can run a profit and loss report by item. Most accounting systems can do this, but the setup and maintenance have to be correct for the data to mean anything.

When evaluating SKUs, ignore overhead like rent, software, and marketing. You’re looking at what you sold the item for and what it cost you to produce or purchase. That’s your margin.

There are two ways to look at margin: by percentage and by total dollars. Both matter. One product might have a 90% margin but barely sell. Another might have a 40% margin but generate thousands in sales. Looking at both metrics will help you see which SKUs are most profitable and which ones are actually moving volume.

You don’t need to allocate every expense to every SKU. Just track what it cost to sell the product and how much you brought in from selling it. That’s enough to spot your winners and your laggards.

Need help setting up proper bookkeeping to track SKU profitability? Explore our business accounting insights for more guidance.

How do I calculate inventory turnover?

Inventory turnover tells you how many times you sell through your stock in a given period. To calculate it, divide your cost of goods sold by your average inventory during that period.

Inventory Turnover = Cost of Goods Sold ÷ Average Inventory

For example, if you sold $400,000 worth of product in a year and your average inventory was $100,000, your inventory turnover is four times.

Is that good? It depends on your business. If your margins are high, you don’t need to turn inventory as often. If they are lower, you’ll want to move product faster to stay healthy.

You don’t have to calculate turnover for every product unless costs or sales vary widely. Looking at total inventory turnover is usually enough.

You want to see a pattern where inventory rises when shipments come in and falls as you sell. If that cycle disappears, something is off. You may be buying too much, selling too little, or your books may not be correctly adjusting inventory. Inventory turnover helps you spot these problems early.

What are common inventory mistakes to avoid?

One of the biggest mistakes is buying too much too soon. Founders fall in love with a product and get excited about a potential hit. A supplier offers a discount for volume, so they stock up, thinking they’ll get a better margin. But if that product doesn’t sell, all you’ve done is tie up cash.

The smarter move is to take the lower margin on smaller orders while you validate demand. Once you know it’s working, then scale up. Otherwise, you risk being stuck with thousands of dollars worth of inventory that’s not moving.

When inventory isn’t selling, you need to do something with it. Don’t let it sit in a warehouse hoping someone might want it later. If a product hasn’t moved in six months, that’s usually too long. Sometimes founders hang on because they hope a past customer will reorder. If that ever happens, you can always reorder or have a conversation about their volume expectations.

At a certain point, you have to stop thinking about what you paid and focus on what you can get. Selling at cost is great. Selling below cost might be better than doing nothing, especially if it clears shelf space and lowers carrying costs. If nothing else works, donate it or write it off. Holding onto inventory “just in case” costs more than most people realize.

Ready to stop making costly inventory mistakes? Schedule a free intro call and we'll start with a personalized financial health check to identify your biggest opportunities.

When should I outsource fulfillment or inventory management?

The tipping point usually comes when doing it yourself starts pulling you away from growing the business. If you’re spending your days chasing boxes and managing warehouse chaos instead of focusing on strategy, product, or customers, that’s a problem.

It’s not always about scale. We’ve seen businesses making $1 million a year where outsourcing made sense, and we’ve seen $5 million businesses where it didn’t. What matters more is how much time and mental energy fulfillment is taking from you.

Cost is part of it too. When you outsource, you’re paying someone to handle picking, packing, shipping, and customer service. That cost may seem high, but when you factor in what your time is worth and the errors, delays, or missed opportunities that can come from trying to juggle everything yourself, it often makes financial sense.

There’s no one-size-fits-all answer, but if fulfillment feels like the biggest source of stress in your business or if your growth has stalled because you’re spending too much time putting out fires, it’s probably time to look at handing it off.

How does inventory planning affect cash flow?

Inventory is one of the top places your cash goes, especially for product-based businesses. Inventory, sales, and cash flow need to be planned together.

Start by laying out what you expect to sell over the next three, six, or twelve months. That sales plan will tell you what inventory you’ll need to hit those numbers. From there, you can build a cash forecast. You’ll see when you’ll need to spend money on inventory and when you expect it to come back in as revenue.

The order matters. Plan your sales first, then inventory, then cash. Sales is your inflow. Inventory is the cost you pay to generate that inflow. Together, they define how much cash you will or won’t have.

Without this structure, it’s easy to lose track of what’s driving your cash burn. Maybe you missed sales targets because you didn’t have enough stock. Or maybe you spent too much on inventory that’s still sitting unsold. Both hurt cash flow and both are avoidable with better planning.

The more you connect these pieces, the easier it becomes to see where things are breaking down. You can hold yourself and your team accountable, and you can move faster when something needs to change.

Want to master cash flow planning for your business? Read more financial management strategies on our blog.

What’s the easiest way to forecast inventory needs?

Start by putting numbers on paper or into a spreadsheet. Even if you’re guessing, that guess is better than flying blind. Lay out what you think you’ll sell over the next three to six months. This gives you a starting point.

For example, if you believe you’ll sell $1 million in product and your cost of goods is 25 percent, then you’ll need around $250,000 in inventory. Next, look at what you already have. If you’re sitting on $500,000 worth of product, that means you’ve got a $250,000 overstock problem.

Knowing the size of the gap won’t fix it overnight, but it will change how you think about solving it. Many founders get stuck because they haven’t defined the problem. They don’t know if they’re short or over, if they’re paying too much, or if product is arriving too slowly. Without that clarity, it’s hard to take action.

Once you can say, “Here’s what I think I’ll sell, here’s what I’ll need, and here’s what I already have,” you can build a plan around that. Whether you need to cut back on reorders, sell through overstock, or adjust your pricing, you’ll be making decisions with actual numbers.

You’re not aiming for precision here. You’re just trying to put a shape to the problem so it feels smaller and more manageable. From there, the next decisions become easier.

How should I think about tariffs in my inventory strategy?

If you import product, tariffs affect your costs. They might not show up as a separate line in your books, but they belong in your pricing and purchasing decisions.

Tariffs can change quickly and take a bite out of your margins. You don’t want to wait for a surprise increase to start reacting.

Ask yourself: if tariffs rose by 10 percent on a key product, could you raise prices without losing customers? Would you still make money? If not, you need to rethink your pricing or your product mix.

Tariffs are part of your cost. Treat them that way and you’ll be better prepared to respond when changes happen. It’s better to act before problems pile up.

How does inventory impact other parts of my e-commerce business?

One of the hardest parts of inventory is that it touches every part of your business. Sales, cash flow, forecasting, and pricing all connect. You might be making the right call on sales but still run into inventory problems. Or you might be building cash reserves while holding too much stock.

Most founders don’t need a complicated system. They need a way to see the big picture and catch warning signs early. That is where most of the value lies. If inventory still feels overwhelming, you’re not alone. It is one of the most complex parts of running a product business and rarely fixes itself.

You don’t need new tools. You need someone to help you make sense of the numbers you already have.

What blind spots hold founders back in inventory management?

The biggest blind spot is usually emotional. Founders get attached to products and past decisions. They hold onto inventory hoping it will eventually sell.

That emotional weight can cloud judgment and stop you from making necessary changes. Holding on to slow movers costs you time, space, and cash.

Inventory management is more than numbers. It’s about being honest with where your business stands and making decisions based on reality.

Building a product business is hard, and getting stuck is normal. With the right support, you can build momentum and lead with strength.

Conclusion: Inventory Doesn’t Have to Be a Mystery

Inventory management is one of the toughest parts of running a product business. It’s messy and emotional, but you don’t have to guess your way through it or suffer in silence.

Many founders we work with have been exactly where you are: stuck between wanting to be prepared and drowning in stuff that won’t move. The difference comes down to asking the right questions, getting clear on the numbers you already have, and making decisions based on facts instead of feelings.

You don’t need to be perfect, you just need to start. Even simple steps like writing down a rough sales forecast or calculating how much inventory you’re carrying can change the way you see your business. From there, next steps become clearer.

Inventory is money sitting on shelves. It’s cash that can either help your business grow or hold it back. When you get a handle on it, you take back control of your cash flow, your operations, and your future.

Let’s figure this out together

You don’t have to go it alone. If you would like help turning your inventory challenges into opportunities, please reach out. We’re here to help.

Ready to turn your inventory challenges into opportunities? Schedule your free 15-minute intro call today to get started with a personalized diagnostic and financial health check.

You can also email us at info@goeucalyptus.co or call/text 702-213-5701.

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“I made a profit last month, so why does it feel like I still don’t have any money?”

As a business owner, you are probably ask yourself this question more often than you’d care to admit. Four times out of five, the short answer is: it feels like you don’t have any money because you probably don’t have any money!

The bigger question is: where did the money go?

This post breaks down why you can show a profit on paper, even when your bank account says something different. We’ll walk through the most common reasons for that gap. We’ll also talk about how to read what the numbers are really telling you.

Profit Isn’t Cash

The first thing to remember is: profit and cash are not the same thing.

If you're doing accrual-based accounting, your profit number doesn’t always match what’s in your bank account. Accrual means you recognize a sale when the goods ship out, not when you get paid. That’s the standard for most growing e-commerce businesses.

So if you made a sale in June, but your customer doesn't pay you until August, your books will still show that June was profitable. You’ll see the profit on paper. But the cash isn't there yet.

That’s one reason it feels like you made money but didn’t.

Another reason is where that profit shows up. Profit shows up on your profit and loss statement (P&L). But the cash doesn't just live there, it moves through your balance sheet, too.

Not sure how use these statements? Totally normal. You’re not an accountant. If you were, you wouldn’t need help.

Where Your Cash Actually Goes

Inventory

Inventory is the first place your cash disappears.

For example, let’s say your inventory is at $12,000 for the month. The best way to think of it is that you turned that cash into product. It’s no longer money in the bank. Instead, it’s boxes in a warehouse, it’s stuff waiting to get sold.

It’s like you literally put $12,000 on a shelf somewhere and you can't touch it until you sell it. And until you sell it, you can’t use that cash for anything else.

That’s one reason profit doesn’t feel like cash: because it isn’t. You already spent it. It just doesn’t look like spending when it shows up as inventory.

Accounts Receivable

The second place your cash goes is into accounts receivable.

This happens when you ship out a product, but don’t get paid right away. That’s how accrual accounting works. You recognize the sale when the order goes out the door, not when the money hits your bank.

If your customer has payment terms (e.g., they pay in 15days, 30 days, 45 days), then you're waiting on the actual cash to come in. So you make a sale in June. You book the revenue in June. But the cash doesn’t come in until August.

That money is stuck in limbo. On paper, it looks like you made money. But you’re still waiting to get paid. This is why your P&L can say one thing, and your bank account says something very different.

You’re not crazy. The numbers just aren’t on the same timeline.

Inaccurate Books

The third place your cash goes? Bad books.

Sometimes, your books say you made money, but you didn’t. Your books are just wrong.

This happens more often than people think.

Maybe you missed recording an expense. Maybe something got coded wrong. Maybe your balances are old and haven’t been updated.

It adds up fast.

A lot of business owners feel the problem before they see it in the numbers. You just know something’s off. You’re checking your bank account and thinking, this can’t be right.

You're probably right. But you won’t see the answer until your books are cleaned up.

Balance Sheet Activity

The last place to look is your balance sheet.

There are lots of other places that your cash could go other than just showing up on a P&L as an expense. You might have paid off a credit card. You might have paid back a loan. You might have caught up on a bill that was due months ago. You could have paid rent for the next three months.

That’s cash out the door. But it won’t show up on your P&L yet. These are all things that live on the balance sheet.

Here’s the problem: Most people don't ever look at their balance sheet because most people don't know how to read a balance sheet. But if you’re not reviewing your balance sheet regularly, you’re missing key pieces of the cash flow puzzle.

This is where a lot of the “missing” money goes. It’s not missing. You just weren’t looking in the right place.

Trust Your Gut (Most of the Time)

We always tell clients: You can trust your gut about 80% of the time.

Most of the time, you know how your business is doing. You can feel it. You don’t need to check a report to know if things are tight or if you’re on a good run.

It’s the other 20% that will catch you.

When you’re small, you can track everything in your head. You know what’s going in and what’s going out. But especially as the business grows, once you hit a certain point, you can't keep everything in your head anymore.

There are too many moving parts. Too many orders. Too many tools. Too many accounts.

That’s when clean books and a regular look at your numbers really matter. Gut instinct is a great signal. But it can’t run the whole business.

Conclusion

So yeah, you showed a profit, but you don’t have cash. That’s not a mistake.

The difference is sitting in your inventory. Or waiting to come in from a customer. Or already gone to pay off a loan. Some of it might not even be real—your books might just be off.

That’s why we look at not just the P&L, but the balance sheet, too. If you're only looking at one report, you’re missing part of the story. Start checking your balance sheet every month.

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If you're feeling confused and you’re tired of wondering where the money went, just shoot us a note at info@goeucalyptus.co or schedule a 15-minute intro call. We’d be happy to help you get clarity around your numbers.