At Medtrade in Las Vegas, one thing became perfectly clear. Both exhibitors and dealers recognized that more profits are created by “turnover”.
This is nothing new. Turnover means that you buy what you sell, and then as you sell them, you buy them again. It does not mean purchasing enough of any item to keep as inventory for any period of time. Since most invoices are 2%, 10 days, net 30 days, this should be your guide for restocking.
In this fashion, you are not tying up dollars to pay for a bulk purchase, and you will have the cash available and earn the 2% discount. If you doubt what I just said, please speak to your accountant, and then you will understand. Better profits are created by “turnover.”
I recall meeting with a very aggressive dealer in a large town. He was very proud of his reputation as a #1 wheelchair company. He took me into his warehouse and showed me how many chairs he had. He told me that he received superb extra discounts and thought he was brilliant.
As we walked through the storage area, we discovered many boxes broken and when we opened some of these, a few chairs were damaged. We also discovered that in a corner of the warehouse, rain had dripped though the ceiling and had damaged some merchandise.
I asked him how long he thought it would take to sell all of them? His answer, anywhere from 5 to 7 months. I was appalled. By not having free cash available a dealer will miss may opportunities to add new OTC cash sale items.
This applies to everything you sell. So make this a rule when you order anything: 2%, 10 days, net 30. That 2% adds up to 24% a year.