A practical example:

Medel is the proud owner of a small hardware store. He sells hammers, screwdrivers, wood saws, drywall, nails and screws, measuring tape, plumbing tools, levels, and other small construction items. When he helps customers with purchases, Medel often talks with the customers about the projects they are working on. He enjoys hearing all about their plans to repair something at home or at their place of employment.

Because he hears these stories every day, Medel has become excited about doing some home- repair projects of his own. His first project is to fix a leak in the family’s bathroom. In preparation for making these repairs, Medel has begun stocking up on tools and materials he will need. For example, he has taken home several tools, a dozen small pieces of drywall, and boxes of various sizes of nails.

One day, Medel noticed that even though he had sold a normal amount of inventory during the previous week, he didn’t have enough money at the store to make his usual weekly purchases. He looked through his records and was alarmed to find that a substantial amount of inventory was unaccounted for. He was convinced that thief must have broken into his store and stolen his products. He worried about the store’s security all day long—until he got home that night and saw the pile of supplies sitting in the corner of his bathroom. Medel then understood that he was the so-called “thief” and that by borrowing items from the store for personal use, he had hurt his business’ ability to supply goods to all of its customers.

Medel’s story is a perfect example of the cash drain that comes to businesses when business owners (or even friends and family of the business owners) use business goods for personal reasons. This problem, nicknamed “eating your inventory,” occurs with both non-edible and edible goods. Imagine a situation in which the owner of an ink-refilling business fills up his own ink cartridges without paying for the ink. Or imagine the owner of a small eatery giving away sandwiches to his friends on a regular business.

The problem is the same, no matter what the business makes or sells: consuming inventory— rather than selling it—takes inventory and money out of the business and will kill the business quickly. As a business owner, your intent when you buy products is to sell them at a higher price and make a profit. Any deviation from this very basic business plan can lead to disaster.