“From surf wear to Chinese food, innovations in inventory management are helping businesses reduce their bottom lines.”

Thus opens a recent blog on the Forbes website by Lisa Wirthman. Her observations are not revolutionary. Earlier this week, I was talking to an accountant from one of the UK’s leading auditors, which specialises in creating corporate rescue plans. He reported how time and again their initial evaluations of a client in financial distress indicate that bloated stocks are a prime cause for the meltdown.

Let me spell it out. If you buy stock and you do not sell it before you have to pay the supplier, then your cash flow is transferred from your bank account to your shop shelves or the warehouse. You are generously paying the wages of your suppliers rather than saving for your next holiday.

This is a rule that applies to all businesses around the world. The good news for a small business is that it does not necessarily need to purchase a complex piece of software to get on top of the problem. Here are two examples from Jerusalem to illustrate what I mean.

Sometime ago, I was invited to the offices of an exporter of gift items, manufactured in Israel. To paraphrase the discussion, I was asked fairly early on in the mentoring sessions: “Why do we have a hefty red sign on our bank pages, when orders are pouring in?”

As I was preparing my answer, I noticed a large number of boxes on the floor. In response to my question, I was told that this was stock waiting (yet again) to go out, but were all delayed for the lack of solitary items. Here is the key: While payment to my client would not be made until delivery had been completed, my client was about to commence handing over cheques to his suppliers. Case solved, Watson.

Story number two takes me to a small shop in the heart of Jerusalem. The owner was surviving via large short-term loans from relatives. One look at his shelves indicated the core of the problem – he had no idea what he was selling of which items. In paralle, he was purchasing new stock by ‘rule of thumb’. He had so much stock that in some places the customers could not reach the shelves because of so many items had to be placed on the floor.

A new rule was introduced; All new supplies were to be cut by 50%, and this has been in force for several months. In addition, the shop has introduced a very simple tracking system of customers and their tastes.

And the upshot of these changes and greater awareness? My client has given up his reserve warehouse. And I am pleased to report that interest repayments to the bank are dropping significantly every month. Elementary?