How To Optimize Open To Buy Budget

Open to buy is a method used by retailers and businesses to calculate how much inventory or products they should buy. It enables them to invest in precisely the quantity of products they need, no less and no more. It acts as a tool that can impressively refine the financial performance of a brand or store. It lets the retailers effectively manage inventory, make efficient purchases, and plan budgets smartly. But due to costly OTB software, many retailers struggle to budget their businesses. Open to buy also helps a retailer to get the right amount of the correct products at the proper time for their inventory. It also shows the contrast between how much inventory is needed and what is available. 

The OTB method is vital for retailers to save their resources, time, and efforts. Furthermore, it adds to the efficiency and accuracy of a business. Many retailers think to try open to buy but hesitate due to lack of proper guidance and resources. Today, we are here to help you optimize your OTB budget. Here are some steps you can follow to increase the efficiency of your business!

Finalize your budget

An open-to-buy is a budget involving the full range of financial functions. The first step includes the planning process. So, it is essential to always start an open-to-buy method by finalizing your actual sales budget. 

First, set the sales budget for your retail store several months in advance. Fixing the sales budget provides clarity and helps you decide the next steps more effectively. It also guides you on how much to buy. Furthermore, it offers bookmarks for evaluating progress and planning future plans. 

Decide your inventory turns 

Having a good grip on your inventory is the best way to ensure that you'll always have enough stock on hand to satisfy the demand of the market. Excess inventory can slow your cash flow and reduce profits, especially if you forcibly mark items down. So, now we come to the OTB budgeting. For it, you need to know the number of times you plan to turn your inventory in a year. This will help you determine the closing stock level of your inventory. 

The closing stock provides the appropriate forward stock cover at the end of the budgeted period. It is dependent on the targeted inventory turns for the year.

Decide your opening stock

Open-to-buy budgeting helps retailers find the middle ground between high and low inventory levels. You will get to know exactly how much inventory you have and how much you will need for the upcoming period. It provides a clear budget to spend on purchase orders for new products. Opening stock is the stock value you carry at the beginning of the budgeting period. Deciding on the opening stock helps you calculate the open-to-buy budget effectively. It also predicts the trends of your inventory in the future.

Take advice from the professionals

Planning out the OTB budget for your retail store may not be easy if you are inexperienced. As such, it is advisable to take help from professionals, family, and friends who can help you optimize your open-to-buy budget. The Internet is one of the best sources of knowledge on any topic, and OTB is no different. However, the best option would always be to take help from professionals who are already experienced and know what they are doing. Yes, it may cost you some money, but you will get an accurate and efficient budget plan for your retail store.

Give your time

The open-to-buy budget plan for starting months measures the efficiency of the buyers and vendors in providing inventory as planned. Remember that it is a tool that you have to use for convenience. It helps small retailers better manage their inventory. 

Thus, it requires an initial investment in time and attention to build out a realistic plan. You should also maintain the plan as you go through the year or a season. It's a tool that, in the hands of a fully committed small retailer, can improve the financial performance of their business. So, plan out things by taking some time, analyzing the consumer behavior, and deciding the changes in your inventory. 

The advantages of optimizing the open to buy budget for your business

Finest stock level

Through the open-to-buy budget, one can easily manage the inventory. Usually, managing the stock in the inventories can be seen as one of the biggest challenges faced by retailers. Many a time, when they buy the stock, it may lead to having too much inventory or having too little inventory. Thus, open-to-buy budget planning is a must to get the stock that is needed.

With too much inventory, retailers tend to suffer the loss of money and resources. The items expire after some time if not sold, and thus get wasted. With less inventory, you give your customers dissatisfaction of not having the desired item in stock. Therefore, open-to-buy budget planning can help retailers find balanced inventory levels. They will know exactly how much they need to buy for their retail stores. Optimizing an open-to-buy budget saves a lot of money, inventory storage, and resources.

More efficient inventory

Generally, most retailers prefer to plan out their inventory either monthly or weekly. By planning out the budget monthly, you know how much stock you require and what changes you should make based on the customer's choices. Doing this also helps you save money and stock storage timely.

Beware of overspending

The open-to-buy budget is for retailers to plan out their inventory stock efficiently. It is designed to save up money and resources. But, it is a financial budget, and if not used wisely, it can tighten your budget instead. Making an OTB budget helps you carefully maintain retail merchandise across your business for the year. It can also help you find "slack" in your inventory investment budget and keep you from over-investing or over-spending.

Getting to know the trends

Generally, it is seen that there's always more than meets the eye when it comes to retailing. The trends that are obvious now might not be accurate. For instance, jacket sales spike just before the winter season. But, according to the open-to-buy research, the trend starts to speed up even earlier than expected. When you look into it in detail, you will realize that jacket sales do spike even before the expected time. Thus, these trends through OTB budget planning help you find the latest trends in the market.

Furthermore, you can see how the open to buy is not just used in managing the inventory. You can use it to create plans for sales and promotions as well. While following the open-to-buy pattern, you will find no inventory shortage during the peak seasons, when the trends are at their topmost.

The inventory receipt plan

The inventory receipt plan carries out several essential tasks. It acts as the inventory buying plan for the coming months. Though it doesn't tell you, particularly, what to buy, it does tell you the number of products you need to buy each month. Also, the inventory purchasing plan acts as an essential input into a financial cash flow plan.

An open-to-buy plan enables a small retailer to evaluate metrics like critical inventory productivity, inventory turnover, and gross margin return on investment. Even before the season, one can know the trends. Thus, it plays a vital role in providing a retail business with stability and financial accuracy of performance.

Conclusion

According to insights, every year, many retailers have to close up their stores due to mismanaged inventory. This is a growing problem with a simple solution. Using an open-to-buy budget plan can stop your expenses from going under or over the budget. To make this plan for your retail store, you should know your inventory turnover and sense-check any predictions by comparing them against previous sales data. 

An open-to-buy is merely a tool to help a small retailer better manage its inventory. It is benefitting the retailers on a large scale nowadays. It not only helps in managing the inventory efficiently but also helps in the sales of stores. Furthermore, it is undoubtedly a fantastic tool to try if you want to boost the accuracy of your business. Here, in this article, many steps and tips are mentioned that will help you optimize the budget plan of your store. Also, don't forget to share these steps with someone who might really need it. 

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