If cash feels tight, your inventory is usually the real problem.
He took off his glasses and rubbed his eyes. “Sales are up again this month. So why does the bank account look like this?”
I’ve had this exact conversation more times than I can count with manufacturing business owners. Strong sales, healthy orders, but somehow there’s never enough cash when you need it.
Nine times out of ten, the problem is sitting quietly in your warehouse.
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When Your Inventory Starts Running the Show
It happens gradually. Raw material prices tick up, so you buy extra to lock in better rates. A big customer hints at a future order, so you stock up just in case. Before you know it, your shelves are rammed and your bank balance is worryingly thin.
I see profitable manufacturers struggling with cash flow all the time, and it’s usually because too much money is sitting in stock that isn’t moving quickly enough.
Why Your Bank Account Feels Empty When Sales Look Good
Here’s the thing about inventory “it feels like an asset”. And technically it is.
But from a cash flow perspective, it behaves more like a millstone around your neck.
Let me give you a real example. Say you’re holding £500,000 worth of stock and it turns over four times a year. That means roughly £125,000 is just sitting there for months at a time, not earning you anything.
Meanwhile, your suppliers want paying in 30 days. VAT bills arrive quarterly. Wages go out every week without fail.
Your cash is locked up in pallets and shelving units while your financial obligations run like clockwork. That’s the disconnect that catches people out.
What’s Actually Taking Up Space in Your Warehouse?
This is where it gets uncomfortable, but you need to do it.
Go and actually look at what’s in your stores. Not what the system says should be there, what’s physically sitting on those shelves.
Sort everything into three piles:
Fast movers – stuff you use every week
Slow movers – items you need occasionally
Dead stock – anything that hasn’t moved in three months or more
Every single time I walk through this exercise with a client, they find surprises.
I’ve seen businesses where 30 to 40 percent of their inventory hasn’t been touched in six months. That’s not stock, that’s trapped cash gathering dust.
The Numbers That Tell the Real Story
You need to know your stock turnover ratio.
Don’t worry, it’s straightforward:
Stock Turnover = Cost of Goods Sold ÷ Average Inventory
If that number is low, you’re buying too early or ordering too much. Most healthy manufacturing businesses turn their stock between six and eight times a year, depending on what they make.
Higher turnover means cash is flowing through the business.
Lower turnover means you’re probably relying on your overdraft more than you’d like.
When “We’ll Use It Eventually” Becomes a Problem
One of my clients used to order 8,000 units at a time because the per-unit price was better. When I asked when they’d use it all, the answer was always “eventually.”
But eventually turned out to be six months. Sometimes longer. Sometimes never.
Your forecasting needs to be based on reality, not optimism.
That means confirmed orders, actual production capacity, and real customer buying patterns. Not what you hope might happen or what the sales team thinks could possibly come through.
The Simple Change That Frees Up Cash Fast
Here’s something you can do right now that makes an immediate difference.
Instead of bulk ordering every two months, switch to smaller, more frequent orders.
You’re buying the same total amount of materials, just spreading it out differently.
Let’s say you normally spend £60,000 on stock every eight weeks. Change that to £30,000 every month instead. Same materials, same production output, but you’ve just released £30,000 of working capital back into the business.
That one shift can turn struggling cash flow into something stable and predictable.
Why Your Stock Numbers Are Probably Wrong
Too many manufacturers are still juggling spreadsheets that don’t talk to each other.
Production has one set of numbers. The warehouse has another. Finance is working from something completely different.
That’s how you end up overordering without realising it. Nobody has the complete picture.
You need one system where every movement updates in real time. When materials arrive, when they go into production, when finished goods leave, all of it needs to feed into one place.
That visibility means you’re making decisions based on facts, not guesswork.
A Real Example That Nearly Broke a Business
A manufacturing firm I worked with had £1.2 million sitting in inventory. Everyone assumed it was all necessary for production.
When we actually analysed the movement data, £360,000 of it hadn’t been touched in six months.
That level of stock ties up so much cash it becomes genuinely dangerous. We shifted their purchasing from every two months to monthly, cleared out the old materials, and matched their buying to actual sales demand.
They only needed better control and suitable management tactics that fit in the business model.
Connect Your Inventory to Your Cash Flow Forecast
The biggest mistake I see is forecasting cash without properly considering stock movements. Your inventory directly impacts your cash position, so your forecast needs to include expected stock purchases, when you’ll recover cash from sales, the gap between production and payment, and all your payment terms with suppliers and customers.
Once you connect inventory and cash flow together, those mysterious months where cash suddenly disappears start making perfect sense. You can see exactly what’s causing it.
Where It Usually Goes Wrong
Most manufacturers trip up in predictable ways. They buy in bulk because it feels cheaper. They hold onto slow-moving items for too long. They never properly review stock levels each month. They treat high-value materials the same as cheap consumables. And they let operations make purchasing decisions without involving finance.
Stock decisions should always include your finance team. You’re not just buying materials – you’re spending cash you might desperately need for something else in 30 days’ time.
Getting Control Back
Inventory doesn’t make noise. It sits quietly on your shelves while it slowly strangles your cash flow. But it has more impact on your financial position than almost anything else apart from wages.
If your cash feels unpredictable, heavy, or constantly tight despite decent sales, your inventory is almost certainly the reason. Once you bring in proper control, better visibility, and realistic forecasting, cash becomes stable again.
You don’t need to cut costs or chase customers for faster payment. You just need to stop hiding your money in the warehouse.
Need help getting your inventory and cash flow under control? I work with manufacturing and engineering businesses across the UK to build financial systems that actually work.
If you want clearer numbers and a stronger bank balance, let’s talk.
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Written by Yesim Tilley Founder of Skynet Accounting
Follow me on LinkedIn: www.linkedin.com/in/skynet-yesim-tilley
About Yesim Tilley
Founder of Skynet Accounting, specialising in financial management for manufacturing and engineering businesses. I help factory owners understand their numbers, improve cash flow, and build operations that last. With hands-on experience inside manufacturing environments, I translate complex financial issues into practical decisions that drive real results.