Open-to-Buy: How Much You're Actually Allowed to Spend

You can be profitable on paper and still not have the cash to make payroll, because the cash is not missing. It is standing on the shelves wearing a price tag. That's the gap open-to-buy exists to close, and late summer is exactly when it matters most, because these are the weeks a lot of independent shops commit to what will sit on their floor in November.

That gap shows up in the Federal Reserve's numbers too: in its 2026 report on employer firms, the most common reason firms sought financing was to meet operating expenses (56%), with pursuing an expansion or new opportunity next at 46%. That report doesn't ask about inventory, but I'd bet a stockroom holding more than plan is where a lot of that patching starts.

Most owners and managers are careful about the reorder question: this SKU is low, order more. Almost nobody asks the total-dollars question: how much am I allowed to spend on anything this month? Reorder point is a per-item decision your supplier's catalog can help answer. Open-to-buy is a budget decision only your own numbers can answer, set mostly by what you failed to sell last month, not by what a rep is pitching you this month.

What is open-to-buy in retail?

Open-to-buy is the dollar amount you can still commit to inventory purchases in a given period without exceeding your plan. You calculate it by adding planned ending inventory, planned sales, and planned markdowns (if you price inventory at retail rather than cost), then subtracting what you already have on hand and what you've already ordered but haven't received yet. The result is a spending ceiling, not a suggestion, and it changes every month.

The classic version you'll find quoted everywhere reads: open-to-buy = planned end-of-month inventory + planned sales + planned markdowns − opening inventory − stock already on order. That's the retail method's formula: stock is valued at the price tag, so a markdown lowers its value with no dollar actually leaving, and the formula adds that back. At cost, the term disappears — a markdown costs nothing until the unit sells, which planned sales already counts.

The other four terms are numbers you already have. None of this needs special software. A spreadsheet handles the arithmetic. Finding the on-order number is the step people skip, and it does the most damage.

Walking the arithmetic, line by line

Say you run a small shop planning September. These numbers are invented for the walkthrough; plug in your own and the method holds. Work the whole thing at cost, not the retail price on the tag: the cash leaving your account, your purchase orders and the bank you're protecting are all priced at cost. Converting retail to cost in your head each time is a step that only gets you in trouble under pressure, with a rep on the phone.

At cost, that's four lines, not five: open-to-buy = planned ending inventory + planned sales − opening inventory − stock on order. Nothing left the building, so there's no markdown to add back.

• Opening inventory (what's on the floor and in the back room right now, at cost): $16,000
• Stock already on order (committed to vendors, not yet arrived): $9,000
• Planned sales for September (at cost of goods): $14,000
• Planned ending inventory (what you want on hand September 30): $18,000

$18,000 + $14,000 − $16,000 − $9,000 = $7,000. That's what you're allowed to put on new purchase orders this month, across every vendor and category, combined. Not per item. Total. Run it once for the whole store to start; if categories behave very differently, run the same four lines per department.

What a slow month does to that number

Now suppose August underperformed. You came in $4,000 short of plan at cost, so that $4,000 of stock didn't leave. It's still sitting in opening inventory going into September. Nothing else in the formula moved. Opening inventory is now $20,000 instead of $16,000.

$18,000 + $14,000 − $20,000 − $9,000 = $3,000. One soft month and your buying power for the next one is cut by more than half.

The instinct here is almost always wrong. A slow month feels like a reason to bring in fresh product. The math says the opposite: you already have more inventory than planned, and the extra $4,000 is exactly what you can't spend on anything new. Stock that isn't moving rarely gets fixed by more stock — it gets fixed by cutting the price once and clearing it.

That's a bad month to lose ground before Q4, too: retail sales in November and December alone average close to a fifth of the year's total, according to the National Retail Federation. Check your reorder points against actual supplier lead times while you're at it — open-to-buy sets how much you can spend, reorder point sets when.

The on-order line everyone forgets

Opening inventory you can see, sitting on the shelf. On-order is invisible: purchase orders already committed to vendors, already spent, and not yet in the building.

Skip that line and you double-count your buying power: you see room on the shelf, place a new order, and forget the three already in transit. October arrives, four vendors deliver the same week, and you're out of cash and floor space. If your POS lists open purchase orders, that's a two-minute check; otherwise the number lives in your email and vendor portals.

If the arithmetic comes back negative, that isn't a system error: you're already carrying more than plan, or on-order already exceeds what the month can absorb. Stop placing new orders in that category until the number recovers, even if a good deal comes along. You're seeing the ceiling on paper before you hit it in the stockroom.

Free shipping isn't free if you buy $500 to get it

One more place this gets overridden: a vendor's free-shipping threshold. Add $500 of product you don't need, and you didn't get free shipping. You paid $500 at full cost to save maybe $40 in freight. That's the opposite of a discount, and it comes straight out of next month's open-to-buy.

Two ways to raise the number

The trap is treating open-to-buy as a number you can negotiate with yourself. It's set by what you sold and what's already committed, not by what you want to buy this month. There are exactly two ways to raise it: sell down what you're carrying, or mark it down so it sells. The markdown itself doesn't move the number; only the sale does. Everything else is a story you tell yourself to justify one more order.

Common questions

How often should I recalculate open-to-buy?

Monthly at minimum, weekly during heavy-receipt seasons like the run-up to Q4. It takes a few minutes once opening inventory and on-order are pulled, and it drifts fast when sales run ahead of or behind plan.

What if a vendor's minimum order is bigger than my open-to-buy?

Then you don't have open-to-buy for that vendor this month, even if the deal is good. Wait for next month's reset, negotiate a smaller minimum, or mark down something else to free the cash sooner. Placing the order anyway and hoping a slow category covers the gap turns one bad minimum into a bad quarter.

What if I don't track cost per item — can I still do this?

You can approximate it using your average markup to convert retail sales to cost, but the accuracy is only as good as that average. If margins vary by category, track cost directly, even in a spreadsheet. A single blended markup overstates open-to-buy on high-margin lines and understates it on low-margin ones.