Stock Is High, But Cash Is Low

The shelves are full, sales look normal, but paying suppliers and rent feels harder every month. This red flag is about working capital tied up in inventory.

What this usually means

Money that could pay bills, staff, or taxes is sitting on the shelf as unsold products. Buying more stock does not create profit — selling it does.

Why it happens

Bulk discounts from suppliers encourage over-ordering.
Slow-moving products are re-ordered by habit.
Seasonal stock is bought too early or in too large a quantity.
There is no simple rule for when to reorder or write down old stock.

Numbers to check

Inventory turnover ratio (annual COGS ÷ average inventory).
Days of inventory on hand.
Share of stock older than 90 days.
Cash conversion cycle for the business.

Typical warning signs

Storage space keeps expanding.
The same SKUs sit unsold for months.
You need supplier credit or a loan to pay rent while stock is full.

Simple fictional example

A small retailer holds $30,000 in stock but sells only $5,000 of that stock per month — six months of inventory on hand. Meanwhile, monthly cash need is $8,000, and the bank balance is $2,000.

What to calculate next

Model the cash cycle with the Cash Flow calculator. Case study: Small Retail Shop Profitability.

Need to calculate this? Visit SME Finance Helper.