If you operate a company which sells products, then you need to keep an eye on your inventory.  Inventory can consume large amounts of cash, hampering your ability to grow as it limits your liquidity.

It is important to understand the relationship between inventory and sales.  You may have certain high dollar inventory items for which sales occur at a lower volume, while lower cost inventory may turn much more frequently.  You will want to manage your purchases in order to ensure you have enough of the high volume items in stock, and purchase the expensive items less frequently and in lower quantities. 

Do a physical count at least once a year, in order to keep the dollar value on your books accurate.  A policy requiring frequent physical counts may also discourage employee theft. 
Less formally, though, you should take a quick surf through your inventory to conduct what I like to call the “dust test”.  No need to pull out the white gloves, but obsolete inventory may come to your attention sooner if you conduct this sort of walk through every couple of months.  If you have inventory that isn’t moving, consider offering this product at a sale price.  Better to make less profit (or even take a small loss) than to lose the entire cost in addition to the storage space.

Keep an eye on industry trends as well, and manage your inventory more closely for products which may be on the verge of an upgrade.  If possible, take certain items on consignment or with a right of return so you don’t get saddled with last year’s version of something.  Buy just enough (or just enough to meet the next price break if you’re confident you can sell it).

Often a business owner will reach the end of the year, and celebrate a successful, profitable year.  Then they will take a look at their balance sheet only to realize that they have less cash now than they did at the beginning of the year.  If accounts receivable are well managed, then the issue could be that they’ve been stocking up their inventory.  Managing this asset closely will allow the business to keep more cash on hand to fund operations and growth.