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If there is one sentence I hear more than any other from seven-figure sellers, it’s this: "I’m making a profit on paper, so why is my bank account empty?"
The answer is almost always sitting in a warehouse.
In the fast-moving world of TikTok Shop and Amazon FBA, inventory is a double-edged sword. You need enough stock to ride the wave of a viral trend, but holding too much capital in cardboard boxes is the fastest way to suffocate your business.
As a specialist Ecommerce accountant UK sellers rely on, I see the backend of hundreds of Shopify and social commerce stores. The businesses that scale aren't necessarily the ones with the best products; they are the ones with the best cash flow discipline.
Here is how to optimise your inventory management without putting your liquidity at risk.
Many sellers look at the unit cost of a product and stop there. They calculate their margins based on landing a product for £5 and selling it for £20. But this ignores the "carrying cost" of inventory, which acts as a silent killer for your working capital.
When cash is tied up in stock, it isn’t working for you. It isn’t paying for ad spend, it isn’t covering your VAT bill, and it isn’t available for product development.
What this means for you:
Beyond the opportunity cost, you have tangible expenses:
The traditional retail model involves buying in bulk to secure volume discounts. However, in the current economic climate, liquidity is often more valuable than a 5% unit discount.
What is a Just-in-Time (JIT) model?
JIT is an inventory strategy where you receive goods from suppliers only as they are needed. The goal is to reduce inventory holding costs and increase inventory turnover.
For a UK D2C brand, this might mean ordering smaller batches more frequently. While your shipping costs per unit might creep up slightly, you drastically reduce the risk of dead stock.
By holding less stock, you immediately reduce your warehousing footprint. If you use a 3PL (Third Party Logistics) provider, this directly lowers your monthly invoice.
More importantly, it keeps your cash fluid. Instead of locking away £20,000 in stock for six months, you might spend £5,000 every six weeks. This leaves that remaining £15,000 available to react to market changes—like pumping budget into a TikTok ad campaign that is performing exceptionally well.
Sam’s Note: Be careful not to cut it too fine. The "TikTok effect" can drain stock in hours. A JIT model in social commerce requires a supplier who can restock you rapidly, or a hybrid model where you keep a "safety stock" of your bestsellers.
Guesswork is expensive. Too many sellers reorder based on "gut feeling" or simply repeating the previous order. To fix your cash flow, you must rely on data.
Modern inventory optimisation relies on connecting your sales channels (Shopify, Amazon, TikTok Shop) to accurate forecasting tools.
If you are selling on TikTok Shop or via influencers, traditional seasonality (like Christmas or Black Friday) is only half the story. You also have "content-driven" peaks.
Key Data Points to Monitor:
What this means for you:
Don't reorder based on last month's sales if last month was inflated by a one-off viral video. We help clients analyse their "baseline" sales versus "spike" sales to ensure they don't over-order for a quiet month.
This is the most underutilised lever in e-commerce. Most new sellers accept the standard "30% deposit, 70% before shipping" terms. This is terrible for cash flow because you pay for the goods weeks (or months) before you can sell them.
As you build a relationship with your suppliers, you must negotiate better terms. Your goal is to shorten the Cash Conversion Cycle (the time between paying for stock and getting paid by the customer).
Negotiation goals:
If you can sell the stock before the invoice is due, you are effectively using your supplier’s money to fund your growth. That is the holy grail of working capital management.
As your accountant, I don't just look at your bank balance; I look at efficiency metrics. The most critical one for inventory is your Stock Turn Ratio.
What is Stock Turn Ratio?
It measures how many times you have sold and replaced your inventory over a specific period.
The Formula:
What does a "Good" Ratio look like?
We track this specifically for our clients to flag when a particular SKU (Stock Keeping Unit) is becoming a financial drain.
Inventory management isn't just about logistics; it’s about tax efficiency.
If you are developing your own products, there may be R&D tax credits available for the development phase. Furthermore, understanding how to value your stock at year-end (using Lower of Cost or Market value) can significantly impact your Corporation Tax bill.
A Note for Creators and Affiliates:
One specific challenge we see at Social Commerce Accountants is the tech stack gap. The integration software for creators and affiliates to automatically track stock and payouts across multiple platforms doesn't really exist yet.
Generic accounting software often fails to split out platform fees, affiliate commissions, and holding costs accurately. If you are relying on a generic Xero feed without manual reconciliation, your profit margins are likely wrong.
If you are struggling to balance the books between Amazon settlements, TikTok payouts, and supplier invoices, it is time to speak to a partner who understands the ecosystem.
Sam Hoye is the founder of Social Commerce Accountants, a specialist firm dedicated to helping UK e-commerce brands, TikTok Shop sellers, and influencers keep more of what they earn. With deep expertise in the intricacies of platforms like Amazon, Shopify, and TikTok, Sam moves beyond basic bookkeeping to offer strategic financial guidance that fuels growth.
This guide is not financial advice. All content is for educational purposes only. Please consult a qualified accountant or financial advisor to discuss how these strategies apply to your specific business circumstances before making any financial decisions.
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