Revolving Fund- Sick and Dying

Just a review of what I think I know off the top of my head about Revolving Funds and Inventory they are invested in.

When a Revolving Fund slows down because of declining sales it is sick.  When sales trend downward then the size of inventory investment necessary to support sales declines. When the trend reaches the point where they stop then the Revolving Fund stops revolving.  By definition the Revolving Fund is dead.  The carcass (inventory of what it bought) it leaves behind is worthless.  Cash portion of the Revolving Fund (if any) remains and is worth whatever it is in cash.  If inventory investment lags the need for that investment level in inventory because sales do not support that level then inventory is excess to needs.  Inventory becomes a liability when the cost to dispose of it is is greater than the cost to continue to hold it.  This is  classic dilemma of a Revolving Fund Manager.  When to put sale prices on items, when to get rid of them when the cannot sell at any price.  The point at which to get rid of an item and take a total loss on it is when the cost to continue to hold it in hope it will sell in the future is equal to the cost to dispose of it.

The health of a Revolving Fund and measure of its efficiency is its rate of turnover.  The magnitude of profit (loss) resulting from Revolving Fund turnover is a function of the spread between purchase price of inventory funded by the Revolving Fund and sales price of the inventory and the rate of turnover.

The Revolving Fund is composed of cash on hand and inventory.  Things in inventory that do not sell, or sell slowly are a drag on the business objective of having an inventory of product to sell for a profit.  Then they have to be sold at a less profit, no profit or a loss.  If they cannot be sold at any loss price then ultimately the cost associated with holding them in inventory with some reasonable expectation of sale exceeds the cost of disposing of them by hauling them to the dump.  It is a risk factor thing. 

Revolving Funds do the work of generating bottom line Profit or....Loss. 

Profits are happy money that goes out of the Revolving Fund into the treasure chest of the enterprise. 

Losses to the Revolving Fund draw money from the treasure chest in order to maintain Revolving Fund ability to operate.  A cash infusion to the Revolving Fund is needed to replace the money it lost when the bottom line says it lost more cash than it made. 

Inventory Managers do their management work by applying Working Fund (Revolving Fund) Capital Assets to invest in inventory levels necessary to support the objectives of the enterprise.

Financial Managers are forever beating up Inventory Managers to make the most efficient use of the Revolving Fund.

Sales Managers are forever beating up on Inventory Managers when there is not enough Inventory to sell.