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Inventory Turnover Keep your business on track by keeping track of inventory turnover.

When you have replaced 100 percent of your original inventory,you have "turned over" your inventory. If you have, onthe average, a 12-week supply of inventory and turn it over fourtimes a year, the count cycle plus the order cycle plus thedelivery cycle add up to your needs period. Expressed as anequation, it would read:

Count Cycle + Order Cycle + Delivery Cycle = NeedsPeriod

For instance, suppose you decided to count inventory once everyfour weeks (the count cycle). Processing paperwork and placingorders with your vendors take two weeks (the order cycle). Theorder takes six weeks to get to you (delivery cycle). Therefore,you need 12 weeks' worth of inventory from the first day of thecount cycle to stay in operation until your merchandisearrives.

You can improve your inventory turnover, however, if you countinventory more often--every two weeks instead of every four--andwork with your suppliers to improve delivery efficiency. Alternateways of distributing goods to the store could cut the deliverycycle down to three weeks, which would cut inventory needs to sixweeks. As a result, inventory turnover could increase from fourtimes a year to eight times.

Another way to look at turnover is by measuring sales per squarefoot. Taking the average retail value of inventory and dividing itby the number of square feet devoted to a particular product willgive you your average sales per square foot.

You should know how many sales per square foot per year you needto survive. Calculate your sales per square foot once a month tomake sure they are in line with your expectations.

Excerpted from Start Your Own Business: The Only Start-UpBook You'll Ever Need, by Rieva Lesonsky and the Staff ofEntrepreneur Magazine, © 1998 Entrepreneur Press

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