The last purchase order of the season is on your desk, or it went out last week. Back in September we said to build the 13-week cash forecast before the Fed met on September 16. The Fed met and raised a quarter point, to 3.75% to 4.00%, by a 12 to 0 vote. On October 28 it held at that level, 10 to 2, and both dissenters wanted another increase. The question in the inbox is what that does to the order.
The quarter point itself barely moves the numbers. The reason the Fed raised, and the fact that two members wanted to go again, should.
What the quarter point costs
Your line of credit moves with the Fed. As an illustration only: $3 million drawn for four months, from now through February, at a rate one quarter point higher, costs about $2,500 more. The Fed's September projections put the median rate at 4.1% at the end of this year, which reads as one more quarter point at the December meeting, and 4.1% at the end of 2027, which reads as no cuts next year. Double the illustration and you are at $5,000. If that number changes your order, the order was already too big for the balance sheet.
What the reason costs
The Fed raised because inflation is not coming down, and it held in October because inflation is still not coming down. September prices were up 3.7% over the year, from 3.4% in August, and gasoline alone rose 9.1% in the month. Households saved 3.8% of their income in September. Bank credit cards charged 22.15% on accounts carrying a balance in the second quarter. That is the customer your last order is for: paying more for gas and groceries, saving little, and borrowing at 22% to buy from you.
Forecasters still expect the season to grow. Deloitte projected on September 10 that holiday e-commerce sales would rise 7.5% to 8.4%, against 4.0% to 4.8% for retail overall. Take out 3.7% inflation and online is growing around 4% in units. If your plan assumes 20% unit growth, the other 16 points have to come out of a competitor's cart, and the customer filling that cart is borrowing at 22%.
The cost of being wrong in each direction
Too much inventory costs you three ways. The cash is gone now. The carrying cost runs at the new rate, with seasonal storage and shipping surcharges stacked on top. And the tax code gives you no deduction for inventory that is sitting there. You get it when the goods sell, or when you write them down, and a write-down has to be backed by evidence of a lower value, not by the fact that nothing is moving. The income you used to buy this inventory was taxed; the deduction waits for the sale, even if that is March.
Too little inventory costs once, at the best margin of the year, and it is the mistake most founders fear more. That fear is why last orders run large. The honest comparison is the margin on the last 10% of units you would sell in a good season, against the cash, interest, and write-down risk on those same units in a normal one.
Financing what you do order
Match the money to the life of the inventory. Units you expect to sell by December 31 can sit on the floating line, higher rate and all, because December payouts pay it down. Units you would still be holding in February should not be financed at the seasonal peak. That is a fixed-rate term loan, supplier terms, or a smaller order. Revenue-based advances belong in the same comparison, priced as an annual rate, not as a fee. And if your loan agreement has an interest coverage or fixed-charge covenant, rerun it at the new rate before the year-end test, not after.
Three numbers to ask for this week
- The last order in units, next to last year's sell-through and the 7.5% to 8.4% market number.
- The 13-week forecast rerun at the current rate, with a second quarter point in December.
- The inventory you expect to hold on January 31 under the plan, and what it costs to carry it to March.
Where your facts change the answer
Your line may be priced off a different index, and your lender may reprice on a lag. Categories differ: consumables reorder, hard goods do not. The forecasts above are national; your own sell-through data outranks them. The interest figures are illustrations, not a projection.
If nobody has rerun your forecast at the current rate with the last order in it, that is the fractional CFO work for this week.
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