Welcome to the Inventory Genius podcast. I'm your host, Sierra Stockland. I've spent more than 20 years now in product-based businesses. I've owned retail and wholesale companies. I've even had a subscription box. I started my first profitable business at 13 and I went on to build a seven-figure retail company, which I then franchised. I'm the founder of Inventory Genius, co-founder of your C-suite, author of the book Inventory Genius. And because I truly believe we excel when we push ourselves to do hard things, I'm also a four-time Iron Man finisher. Now I get to help product-based business owners understand how their inventory and cash work together so they can stop chasing the next sale and start keeping more of what they've already earned. I've had the privilege of working with thousands of business owners, and together we've cleared over $3 million in debt. On this show, we talk about the decisions behind building a profitable business. We talk about inventory, cash flow, profit, and what it truly takes to lead a company on strategy instead of gut. If you're new here, can I invite you to hit subscribe so that you never miss an episode? And if you'd be so kind, would you also drop a rating at the end just to let me know your thoughts? It really helps me build more content that you want to hear and learn from. Now let's jump in. Raise your hand if either of these ring true for you. Number one, you've run out of a bestseller at the worst possible time. Or number two, you found yourself staring at shelves full of inventory that just won't move. Your cash is completely tied up. So today we're going to talk about being the captain of your inventory ship. I want you to be driving what inventory sells, when it sells, how it sells. I want you to be using your inventory to create more profit and keep more cash. So let's dive into what I call the first three reasons that you have an inventory struggle. So if you're finding yourself in some type of inventory struggle, either the cash is sitting on shelves and that inventory just won't turn into cash, it will not move, or you keep running out of your best possible stock. There's three main reasons for this. Number one, you could be buying on gut instead of using a plan. Number two, you don't actually know how much inventory is truly tied up, or what cash in that inventory is truly tied up. Or number three, you're missing the link between inventory and profitability. Now, you might say, I buy with an open to buy. So I have a plan. So number one doesn't apply with me, apply to me. You might say, Sierra, I have a sophisticated point of sale system. I've been doing this for years. I know how much inventory I have and I know the cash that's tied up in it. Great. Then let's focus on number three because I would venture to guess that many of you here are missing the link between inventory and profitability. I like to say the way that inventory and cash work together. The problem isn't actually your buying. The problem is not understanding how cash and inventory work with one another. So today, what we're gonna do is we're gonna talk about the cash and inventory connection. Then I'm gonna show you the math problem, how the financials and profit plan are key pieces to buying right and buying the right inventory, selling the right inventory at the right time. And then we're gonna talk about how creating a sales goal is really what drives your inventory planning. Before we talk about all of the science and the logistics and the math equations, I want to share my story with you. So I am a third-generation entrepreneur, born and raised in an entrepreneurial family. I'm no stranger to small business. I started my first business when I was 13, built that, grew it. Then I launched a retail store in 2006. Um I was, I think, 27 years old at the time, so still young and excited about all of the opportunity that retail could possibly bring. I wanted to build a brand. So I launched a maternity baby store in 2006. I built that, grew that, ended up franchising it, um, franchised in 2010. And the outside looking in to anyone looked wildly successful. I was young, I was building quickly, I was on national stages, I went to the White House on behalf of small business, I was testifying in the Senate on behalf of small business, I was on the Chamber of Commerce, I was opening multiple locations every single year. But behind the scenes, I felt like a fraud. I felt completely stressed out. I knew something was wrong. I kept accumulating more and more debt. And the entire time I was working, I wasn't paying myself. I was trying to outsell my cash flow problems. I had so much cash type inventory that I just couldn't sell. And I really didn't have systems or data. I was working off gut and feeling. And honestly, for most founders, entrepreneurs, business owners, buyers, we have to use our gut. There is importance to the gut and the feeling of what's going to work, what's going to sell. Should I open that next location? Should I hire this person? That's important, but I was most often working on gut and feeling alone. In 2017, after all the hustle, all the grind, all the working, the staying up late, the answering phone calls and DMs and emails 24-7, I ended up losing everything, including my home. I had so much debt tied up in that inventory that wouldn't move. I had so much debt that I had taken on just to stay ahead of my sales. And because I didn't understand the math problem in my business, it all came crumbling down. When I was sitting on the couch in my home for the first time in let's say 20 years, not having a team, not having a place to go to work in the morning, not having a goal to chase. I remember thinking, like, what was this all for? What was the point of working and grinding and hustling? And I decided that I was gonna try one more time, but this time I was gonna do it differently. This time I wanted to build from a place of profitability. No more working for free, no more leases and loans. I wanted to build a business that could provide financial security for myself and my family. And so I built the next business from profit before sales. We built it from profit up. And through that experiment that I was going through, I started to build out the inventory genius operating system. IGOS is what I call it. Today I'm going to show you some elements of the Inventory Genius operating system. This is an operating system that was created by a product-based business owner for product-based businesses. It helps you put together the disconnect that you've been feeling between your cash and your inventory. It shows you how the math problem has to make sense for your business. All right, our have our conversation today divided into three parts. Part number one, we're going to talk about understanding your financials and building a profit plan. Now, many of you might be thinking, um, I want to talk about buying. I want to buy better. I want to know that exact right seller, right? I want to get the best possible margin out of my business. This is holiday season we're heading into. This is the time to make money while the sun shines. And so I don't want to talk about financials. I let my bookkeeper take care of that. Well, I want us to stop for a minute. I want us to slow down because if you're gonna buy smart, if you are actually going to make money, then you have to understand how the financials work. So there's two financial metrics that every inventory genius must know. Number one, profit. Revenue is not profit. Revenue simply shows you how much work you're doing. Profit shows you what's happening with your cash. Number two metric gross margin. And let me tell you that margin and markup are not the same thing. Margin and markup are completely different. Markup is what you desire to have, margin is what's left after that sale is actually made. Understanding your profit and understanding your gross margin creates your sales goal. And this is so important. At the end of the day, the scientific part of our business, the scientific part of buying, the scientific part of running a business is just a math problem. And here's what's super exciting you can all do math. You can add and you can subtract. And it's as simple of a math problem as that. It's not an algebra equation, it's not long division. We don't even have to do multiplication. It's a simple addition and subtraction math problem. And I want to walk you through that today. Okay, so the first thing we're gonna do is we're gonna talk about how this math problem is tied to the two key pieces in our financials. And I promise I will bring this all back to buying. Okay. First in our set of financials is the profit and loss. Second in our set of financials is the balance sheet. So profit and loss, I want you to think of a PL income statement, profit and loss. I want you to think of it as a rearview mirror. This is what has already happened in your business. When you look at a year-to-date PL, if you look at last month's PL, if you look at last year's PL, we're looking in the rearview mirror. It's like driving down the highway, looking in that mirror. What have we already passed? What's already happened? A profit and loss tells you the history of your business. The balance sheet, something that so many people overlook and underestimate. The balance sheet is a snapshot in time. The balance sheet shows you how healthy your business is as of today, how healthy was your business as of last year, how healthy was your business as of December 31st. A PL is for a period of time and it's a rearview mirror. What has already happened? A balance sheet says you're healthy or you're not healthy as of this date. My issue, and one of the core reasons that I ended up losing everything, was that I didn't understand how the profit and loss and the balance sheet gave me clear instruction and a very good indication as to how and when I should buy. In fact, I didn't base my buying on anything related to a PL or anything related to a balance sheet. When I first learned what a balance sheet does and what the point of it is, when I first had someone that explained it to me in a way that I could actually understand, I was like, this is one of the key pieces of what I've been missing. In fact, he said to me, Sierra, a business with a strong balance sheet can weather any storm. We all know that we've been through a crazy storm in our inventory ships over the last, what is it now, six, seven years? 2019, we were heading, we were doing what we were doing. 2020, we all know that story, crazy. 21, we know that story, a different kind of crazy. Lots of sales, money coming in like there was no tomorrow. 2022, now things are on hold, things are slowing down. We've been in this crazy epic storm. And businesses that have a strong balance sheet can weather any one of those. And here's the thing: that's in our rearview mirror. That's already happened, but economic storms come all the time. Family storms, health storms. You know, a storm as simple as you've got construction outside your brick and mortar store, and people can't come in and shop. In fact, I have a client right now who has a thriving retail business in California, and they're looking at in the next coming months, so right after holidays, I think they're gonna start in January, the city is gonna completely rip up the downtown area. This is a thriving community, but they're like, well, we'll do it after holiday. They're gonna rip out all the streets. That's a storm that she's going to have to weather. Now, lucky for her, we've been working on her balance sheet and strengthening her balance sheet for several years. And so she's gonna be able to weather that storm. I didn't understand that. I just thought, you know, I can buy stuff, I can sell stuff. If there's money in the account, I'll buy more stuff. I didn't understand that knowing what a profit and loss does, the purpose of it, and knowing what a balance sheet does, and that I needed to make it healthy was actually gonna give me the tools that I needed to buy well. If you don't understand your profit and loss and your balance sheet, you're gonna be buying in a silo, like just you and yourself, what it feels like, what customers are telling you, the money that you have in your bank account that's giving you permission. I want you to buy with information. So let's talk about this math problem. First, let's start with the PL. So there's really five main areas of a PL. And this is the math problem that I want you to do after today's conversation in your business. First, we have our sales. Okay, so we all know what that is sales, the money that came in. Then we have our cost of goods sold. This is where so many product-based business owners start to go wrong. They think that the cost of goods sold is actually what they just purchased at market or what they bought at the expo or what's coming in next month. The cost of goods sold is actually the cost of the goods that's sold in your business in order to make the sales. So remember, PL, we're looking at the rearview mirror. This has already happened. And so the sales that we made and the cost of the inventory that left our warehouse or left our storefront to make those sales. And here's what's really important: the third bucket on a PL is our gross margin. And this is the difference between that. So remember, I said your math problem is an addition and subtraction math problem. It's very easy. Sales minus cost of goods equals our gross margin. This is your secret weapon. This actually gives you permission to buy more or buy less, depending on what's happening with that gross margin. Then we take our gross margin and we subtract our expenses. These are things like rent, utilities, marketing, travel, people, right? Not debt, not inventory, just fixed and nonfixed expenses. This is the fourth bucket on our PL. And then a fifth bucket on our PL is the net profit. So sales minus cost of goods equals gross margin, minus our expenses equals our net profit, or what we're left with, at least on paper, at the end of the day. What's really interesting, and this is why we really need to sit up and listen when we start to discover how important the financials are to the health of an inventory-based business. Four of the five buckets on your PL are directly tied to inventory. Your sales, your cost of goods, your gross margin, and your net profit. That's pretty heavy. If you're not focusing on your profit and loss, if you're not learning your math problem, if you're not watching your math problem to make sure that at the end of the day, that net profit is a thick enough, heavy enough, weighty enough number to pay you and to pay off your debt, then you're gonna end up in a cash deficit. You're gonna buy wrong. The inventory that sits is gonna matter to you even more. Let's talk about the balance sheet. So the balance sheet really just has two main areas: it has the assets at the top and the liabilities at the bottom. So assets are things that you own that you can turn into cash or they're actually cash themselves. So you would see at the top of a balance sheet, like your checking account number, what you have in your savings account. You would sing things that you own that are assets. Maybe you have trucks or printing equipment. Your inventory is actually an asset until it's sold. Another really key important part to buying well. So when you purchase inventory, the first stop that that inventory is going to make is literally on the balance sheet. We don't cost that inventory out the minute we buy it. We stop that quantity or that cost of inventory, that value of inventory. We stop it first. We leave it first on the balance sheet. And when that inventory is sold, that's when it moves over to the PL and gets costed out. So let me give you an example. Let's say I'm an apparel store and I buy 10 of these for $5 each. So my invoice is $50. Okay. I have $50 in value of inventory. This is an inventory asset to me. When it lands, that $50 value is gonna sit on my balance sheet. When I sell two of these, then the $5 for each of these, so $10 cost is gonna take come off of the balance sheet value. It's gonna move over to the profit and loss statement and it's gonna be costed out. Maybe I sold them each for $10. So I have $20 in sales, $10 in cost of goods, my margin was 50%. And the balance sheet now no longer has $50 of inventory, it has $40 of inventory asset value to it. So when I say that a balance sheet or a business with a strong balance sheet can weather any storm, what I'm telling you is we want a lot of assets. We want cash and a lot of things we can turn into cash and very little to no liabilities. That's a strong balance sheet. Most often when I start working with a product-based business, their balance sheet is very unhealthy, meaning we have very little to no cash or things we can turn into cash, and we have a lot of liabilities. So what we have to do is we have to start looking at our math problem to see how we can create more profit so that we can keep more of that cash and start to build cash, build up our assets, and lower our liabilities. So here's the thing: a profit plan, it's not just a wish. It's not like, oh, this would be nice to be able to take a paycheck. I would love to be able to make $100,000 in net profit. A profit plan is you mathing out your business income. It's you deciding, I want my PL, I want my math problem to look like this when I'm all done at the end of the year, at the end of the month, at the end of the quarter, and then you backing into it and creating the math problem that you're going to then go out and take action on. So the first thing that we need to know is our break-even formula. So I want to go through this with you. Um, you'll see the numbers here. What we have to understand is that our sales goal is dictated directly from our profit goal, and the sales goal is what's absolutely necessary to buy right. So I'm gonna go through the open to buy formula here in a little bit. But the first piece of that open to buy formula is your sales goal. And if you're just creating an arbitrary sales goal, like I did 50,000 last month, so I guess I'll do 50,000 again, or last year I did 100 grand a month, so I'm gonna add 10%. My goal for this month or this year, this month is 110,000. There's no weight behind it. There's no reason behind it. It's just I'm gonna grab a number, I'm gonna go after it, I'm gonna hustle harder, I'm gonna sell, sell, sell. When we create a sales goal based on bottom line profitability because we know our break-even, then when we take that sales goal and we plug it into our open to buy, we're gonna buy so much smarter. So here's the formula. You're gonna take your desired profit. In other words, I need to service this amount of debt every month. I want this to be my distribution as an owner every month. I want this to be profit on paper every month, right? So you're gonna take that desired profit number, then you're gonna for a month, then you're gonna add it to your fixed expenses. So my fixed expenses for the year are or for the month, excuse me, are let's say 80,000. So in this example, 50,000 is what I want to service my debt, write my paycheck, take a distribution, blah, blah, blah. My fixed expenses for the month are $80,000. So I'm gonna add those together, which is $130,000. I'm gonna divide that by my current gross margin, which you can find in your point of sale system. If you've been entering your inventory with its cost, you should be able to take a look at like what's my gross margin currently, because it'll show you your recent sales, the cost of goods, and it should calculate your gross margin for you. So you're gonna take your 50, add it to your 80, which is 130, divide it by your gross margin, and it's gonna give you your break-even. Now that becomes your sales goal. So here's why the profit plan comes first before an extraordinary buying plan. Without a profit plan, your sales goal is just a number. Like I said, it's just an arbitrary number. It's something that you want, it's a wish, it's a dream. It's maybe based on history, historics, whatever, but it's it's arbitrary. You're just grabbing it. It has no depth, no weight to it. It's a target without a financial foundation. There's no connection between what you actually need and what you're going to go out and earn. And what it creates if you don't have a sales goal driven by a profit goal is emotional buying and frantic selling. Let me give you an example. Let's say you say last October, I did 100,000. I want to increase my sales every year by 10%. So this year, my goal for October $110,000. Because it's not it's not tied to profitability, it's this number that you're gonna chase. So what you're gonna do is you're gonna emotionally buy. Well, I think I should buy all this stuff because if I buy this, it's probably gonna sell. People say they'll come in. If I have this, I want to make the sales. So you're just going to emotionally buy. Then when you don't hit that sales goal, you're going to start to frantically sell. Oh my word, I need to put it all on sale. Oh my goodness, I need to run another BOGO event. I need to do a 10% off coupon. I need to do a VIP event because I'm not hitting that $110,000. You start to emotionally buy and then frantic sell. And when you frantically sell, we eliminate or we eat away at even more of our margin, which causes this really uneasy, hectic, hamster-on-the-wheel feeling of I'm always behind in cash flow. A profit plan gives your sales goal a reason to exist. So I want to tell you about Christy. She was one of my clients. She came to me, oh, it's probably four years ago now, three, four years ago. She had three stores, lots of inventory. I went to actually visit her, and I couldn't believe how much inventory she had in her back room. Plus, she had two massive furnace, she had furniture and home goods stores, and then she had a smaller store that did more small goods, gifts, and clothing. She had no cash left. Her inventory was completely tied up, or her cash was completely tied up in her inventory. But she had so much debt and they kept coming to call. They wanted their cash, they wanted their debt paid back because she had inventory. She kept putting it on sale, which lowered her margin, which then gave her even less to buy back into. She hadn't have enough cash to replace it. And so she would take out even more debt so that she could replace that inventory. And it was this awful vicious cycle. So what happened with Christy is she got stuck in this debt cycle just to keep her shelves full. So when I arrived, she had a ton of inventory, but she had no cash in the bank account and she had so much debt and she couldn't get out of the cycle. She kept buying on emotion, hoping the next thing would be the savior for the situation she was in. She kept frantically selling because she had to have more cash to keep up with the debt. And it got her deeper and deeper into a hole. She had a great business on paper, top line revenue, seven figure plus. Like she was killing it, top line, but she had no profit plan underneath it. So what we did is we went to work with looking at her math problem. What were her operations really costing her? What was her margin now? And what should her margin be to pay down that debt? And we right-sized her math problem, paid off her debt, she ended up closing one of her locations, and she's doing phenomenally well. Now she has fully stocked shelves and a fully stocked bank account. Okay, part number two, we're gonna move now from financial understanding to sales goal planning. So we've talked a little bit about this. I want to talk about the open to buy formula. So there's so many systems and people and promises out there. You might feel like you have to buy into a management system in order to run your open to buy. A lot of times as business owners, we just overcomplicate things. We see that we have a problem. I don't have enough cash in the bank account. And so what we do is we add complexity to it. Well, I'll just buy another software program, I'll just hire a full-time buyer, I'll just do XYZ, I'll add another store, I'll add another revenue stream. That's gonna fix my problem. But sometimes it's just very simple. And the open-to-buy formula itself is a very simple one. In fact, each and every buyer, each and every business owner, whether you have a massive retail operation or a small retail operation, you can use this formula in a very simple and easy way and know exactly what and when to buy. So the open-to-buy formula is this: you take your sales goal, which we've already talked about. We create that sales goal off of your break-even and your profit goal, and you add it to your planned inventory. So, how much inventory do you need to keep on hand to keep your store full? I think all of you probably know how much inventory you need to have in order to make your sales goals, right? So I have a 2,500 square foot store. I always have $500,000 at retail value in inventory on my floor at any given time. So you know what you need to keep your store stocked. You can look around your warehouse and see what you need. You can look around your store and see when your store is full. You know that value. So you take your sales goal, you add it to what you need to have to keep on hand, keep the store stocked, and you subtract it, subtract what you're starting with today. So my sales goal for the month, $100,000. I want to keep $500,000 at retail value in my store at any given time. So $100,000 plus $500, I'm at $600,000. I'm starting with $400,000 in inventory today. So $600 minus $400 means I have a $200,000 open to buy. And then I'm going to divide it by my current margin. 50% margin means I have $100,000 in open to buy dollars in order to make my sales goal and keep my store stocked. These are the three numbers that you need: your sales goal driven by profit. You need your planned ending inventory, what you want to keep on hand, and you need what you're starting with today. Sales goal plus ending inventory minus what you're starting with today, and you will have your open to buy. You divide that by your margin, and you'll have your open to buy dollars. Now we want to tie this all back to cash flow. Okay. So here's why cash flow and inventory have to stay connected. When your inventory plan is built from your sales goal and your sales goal comes from your profit plan, every buying decision starts to protect your cash position. Can I repeat that? When your inventory plan is built from your sales goal and your sales goal comes from your profit plan, every buying decision protects your cash position. You stop over-ordering out of habit or fear, and you start ordering with intention. So in the inventory genius operating system, we have four main tools that we work from: our profit plan, our cash flow tool, the financials, profit and loss and balance sheet, and our open to buy. Not just your open to buy. That's where so many product-based business owners go wrong. The only tool, the only system that they want to use is an open to buy system. But if you're missing those other four pillars, think of it like a puzzle. Okay. So when you do have a puzzle, you open up the box, you dump out all the pieces, you prop up the cover so that you can see the picture that you're creating. And what is the first thing you do? You flip over all of the pieces so you can find the corners and the straight edges. You have to create the framework. If you only find one corner piece and you try to build the entire puzzle off just that one corner, I suppose it could be done. But let me tell you, it's going to take way longer. We all know that from doing puzzles for years, right? We have to build the framework and it starts with the four corners. We need a profit plan. We need to use a cash flow tool, something that shows us what's happening with the ins and outs of our cash. We have to have solid financials that we understand how to read, and we also have to have an open to buy. The open to buy piece of this entire system is just a guardrail that honestly keeps the cash where it belongs. So it helps you from overbuying and underbuying. It's not a magic number, but it does give you permission when and how to spend. So Dana is another client I just started working with her earlier this year. And she's really smart. She has two stores and they each do over a million. So she's, you know, proof of concept, she's doing great. But when she came to me, she was literally just buying and buying and buying. In fact, she had a management type software that she was using for open to buy, and it was only looking at a part of the puzzle. It was only looking at how much inventory she had and what was typically selling. It wasn't looking at the cash piece of what was going on with the cash in her business. And so this software kept telling her buy more, buy more, buy more. She kept buying more and more inventory. And similar to Christy, she was starting to have to use debt to fund that. So she had so much inventory. She wasn't dumping it like Christy did. So she wasn't at a place where she was like really cannibalizing her margin. But her store was so full, and the sales didn't reflect how much inventory she kept purchasing. She's never was never really like looking and thinking about what markdowns did cost her if she had to make them. And she wasn't definitely thinking about her margin. So we started looking at what her store actually needed, what the sales goals for the store should actually be. We built out the framework of those four pieces, created a profit plan, cleaned up her financials, watched her cash every single week, and then we created an open to buy that locked that all in and created a beautiful framework for the way that she buys. She ended up selling off and liquidating some stuff that was sitting in the back room in boxes, literally cash on hangers, cash in boxes, used that cash, paid down the little bit of debt that she did have, really recalibrated exactly what her customers were telling her they needed based off of her sales and her sales goals. And she's in a much better position going into Q4. Okay, part number three. So we've talked about a profit plan and how important it is. We've talked about the four pieces of the puzzle, those corner pieces that build out the framework. We've talked a little bit about an open to buy. Now let's talk about how we can use an open to buy and cash control almost as bumpers on the bowling alley, if you think of it this way. So if you think about bowling, which I love doing and I'm horrible at, you get gutter balls all the time, right? You throw the ball down. If you're not practiced, you don't really know what you're doing, lots of gutter balls. So they do have those bumpers that they can pull out. They do it for little kids. They put the bumpers on the bowling alley, right? Your ball's still gonna roll down the alley. And it could still roll at a slow speed if you throw it slow or a fast speed if you're a fast thrower, right? Fast roller, but it's not gonna go into the alley, it's not gonna go into those alleys anymore. Bumpers don't slow the ball down, they just keep that ball out of the gutter. And we want to use two bumpers on the bowling alley of our buying. Bumper number one is your open to buy. So without an open to buy, these costly mistakes will happen over and over again. Number one, emotional buying, we've talked about that. Number two, frantic selling, we've talked about that. And number three, inventory chaos. This hamster wheel of, oh my word, what's the next big thing? What should I do now? What should I do next? Right? Bumper number two is a dedicated inventory cash account. So I want you to think about this. Every time you make a sale, there's a cost to that sale, and the cost to that sale does not belong to you. Can I repeat that? Every time you make a sale, there's a cost to that sale, and that cost isn't yours. It's not for you to keep. Example, this sweatshirt, I buy it for five, I sell it for let's say $20. Okay. So I sell it for $20. The cost of that sale is $5. That's what that inventory piece costs me. That's not my money to play around with. Here's the trap we fall into. We make sales, we have a phenomenal weekend, we have an amazing month, we have a fantastic year, and we have money in our bank account. We look at the top line money like it's all of ours to spend, and it's not. Part of that money that came in needs to go back right to the inventory to feed and replenish the inventory at a rate that the inventory is selling. So, what I want you to think about doing is opening up this is a very practical step for you here today. I want you to open up a cash account for your cost of goods sold. So every single, and I have my clients do this weekly. So every single week you look at the previous week's sales and the previous week's cost of goods sold, and you remove the cost of goods sold from last week's sales from that main checking account and put it over into an inventory account. Essentially, what you're doing is you're starting to build up your own line of credit. We're not gonna rely on credit cards anymore. It might take a while, but we want to get to a place where we don't have to have them. We don't have to have this massive line of credit. We don't have to panic about where we're gonna find the dollars to pay for the net 30 invoice that's coming due. Because we're gonna start to have two bumpers on the bowling alley. Bumper number one is our open to buy. Here's your sales goal that's dictated by a profit goal. Here's how much inventory you have. And so, therefore, here's how much you should go spend. That's one, that's one bumper, right? And then the other bumper is here's the money that you actually have. So now here's how much to spend, and here is if you do or if you don't have it. Because if you don't separate out that cost of goods sold, what happens is we overspend on operating. Because let's say we have, for example, let's say we have a hundred thousand dollar weekend. Feels so good. Okay. Tuesday, 100 grand, dump in our bank account. Oh my word, this is amazing. I have so much money. So I guess I will just, you know, I'm gonna hire that social media marketer. I'm gonna celebrate with my team and take them all out to lunch. I'm gonna buy some stuff, you know. I've been looking at this, my cart's full on fare or whatever. I'm gonna go make those purchases. I'm gonna give my manager a commission or a bonus. And we start spending all that money. What happens is we don't save, we don't have enough to save to replenish the inventory, the cost of those sales. And then we say, oh my word, I need to pay this invoice, I need to buy my inventory, I'll take that fast funding loan, I'll put it on my credit card. But because we haven't managed our math problem and we don't know what each of those buckets should be in our personal business math problem, everything's out of sync. So bumper number two, a dedicated inventory account. And here's how that account works: it's linked directly to your cost of goods sold on your PL or in your um, you know, in your plan, right? So when you look at your point of sale system, here's what I sold, here was the cost. As inventory sells, that equivalent cash of the cost is set aside and it ensures that you replace cash. It's always available for buying. The cash to buy the next time is already set aside before you have the urge to spend it somewhere else. And this does something magical. I hate to use the word magic because it's like it's not easy, it's not wave a wand, and all the things will be, you know, come true for us in our business. But there's something magical about looking at these numbers every Monday, creating a profit plan and every week, every Monday, what were my sales? What was my cost? I'm gonna move this over. You start to really think about margin, how much it matters, and what's really happening to the cash in your business. You start to unravel this tumbled up mess of money where cash is tight. I have a lot, now I don't have any, PL looks good, I don't have money in the bank account. We're looking and focusing on the right things, which is a magical way to start to understand what's happening in our business so we can create more profit and keep more of that cash. The two bumpers together, open to buy controls inflow, the inventory account protects outflow, and together they align so that we can start to create profit and keep it protected. So here's how the entire system in your business should work. You should know your cash and the inventory and how it's related. You should start to look at your financials every month, understanding that the profit and loss tells you what happened and the balance sheet tells you the health of your business. From that information, build a profit plan. Create a math story that makes sense for your bottom line. Set a real sales goal from that profit plan and then plan your inventory to match. So instead of flipping this and starting with the open to buy, I want you to do these other steps first. Know how cash and inventory are tied together. Know what the in the financials are telling you about the health of your business. From that information, build a profit plan. Create your own math story, set a real sales goal, and then plan your inventory to match what's happening with the business. This is how you can start to become the captain of your inventory ship. We're not leaving this to chance anymore. We're not staying on the hamster wheel. We're not playing store with our store. We're actually telling our numbers what we want them to do. We're deciding on what profit's gonna look like in our business. And from that, we decide what inventory we need to purchase in order to make that happen. Hey there. Thanks for listening to today's episode of the Inventory Genius Podcast. Now, before you go, I want you to remember this. Your business does not need another shiny new idea. It needs a plan, not a guess, not a hope, a real financial plan. When you're ready to stop guessing and start running your business on real numbers, I want to invite you to integrate the inventory genius operating system into your business. Go to Sierrestockland.com forward slash program. That's Sierra Stockland.com forward slash program. The link is also in the description of this episode. Thanks again for joining me. I'll see you on the next one. Bye for now.