Available to Spend

In the context of MFP, it refers to the total amount of financial resources that a retailer has allocated for purchasing inventory within a specific period, after accounting for all planned expenses and commitments. This figure represents the budget that can be actively used for new merchandise orders and is crucial for ensuring that purchasing stays within the financial limits set by the company's overall financial strategy. It helps in maintaining a balance between meeting consumer demand and avoiding overstock situations that can tie up capital unnecessarily.

How to Calculate

To calculate "Available to Spend," a retailer would typically subtract all committed expenses (like rent, salaries, utilities, marketing, etc.) and any other planned financial obligations from their total available funds. The formula might look something like this:

Available to Spend = Total Budget - Committed Expenses

This metric is important for retailers because:

1. It helps in maintaining a healthy cash flow by ensuring that spending on inventory does not exceed financial capabilities.
2. It aids in strategic planning for inventory purchases, aligning them with sales forecasts and market demand.
3. It prevents overstocking or understocking by providing a clear financial limit for inventory investments.

Understanding and managing "Available to Spend" is crucial for the financial health and operational efficiency of a retail business.