Friday, 24 June 2011

reduce inventory, generate £1250 cash

There is a school of thought, especially in the manufacturing world, where inventory is a bad thing. That is, money tied up in product or capital asset inventory is dead money and restricts cash flow.

This got me thinking.... how much cash is tied up in an average family home, if you are a homeowner?

A hypothetical example, with all figures estimated shows the value of assets as:

The house itself - £250k
Cars - £20k
Other capital assets- £10k (white goods/garden equipment)
Clothes - £5k
Food - £500
Furniture - £5k
Electricals - £5k (TV/PC/Laptop/Smart phone)
Beds - £2k
Toiletries - £500
Other consumables - £500

Thus a balance sheet of physical assets in the example above is:
£302,500

This model does not take into account expenditure such as mortgage payments, which are outgoings as opposed to assets.

So, if you can reduce your inventory by 10% on the 'consumables/disposables/durables (lasting > 3 years) ' which equate to £29500 then you could generate £2950 x .5= £1475 assuming you get 50% of the nominal value of the goods.

I know how to generate modest amounts of cash by selling consumables as I have sold >250 items.These were made up of clothing, electrical goods and music/books.  If each item is an average price of £5 then I have generated £1250, which is close to my assumed target above.

So, looking at the items within your house as disposable assets, as an area of financial management, can reap benefits, as you reduce your home inventory and 'goods in hand'.This has benefits inasmuch that the exercise would free up more living space for you/your family/partner.

An additional spin off from this is if you can sell it and somebody else have use of it then it supports the recycling/reusing of articles.I know this would reduce the amount of spend by consumers, but as I have previously mentioned, we are slaves to consumerism and recycling goods benefits more than just the giant retailers.

On a slightly separate note, it got me thinking... the largest slice of inventory is your house... 82.5 % in the example above. I will look into this as part of my new economic model.

Thanks for reading.

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