Open-to-buy (OTB) is the merchandise budget still available for a defined period after accounting for the sales plan, desired closing stock, opening stock and commitments already scheduled to arrive. It connects an assortment plan to buying decisions. It does not by itself establish that the business has the cash to pay.
Retail-value formula
A conventional retail-value plan uses:
Required receipts at retail = Planned net sales + Planned markdowns
+ Planned ending stock − Beginning stock
Open-to-buy at retail = Required receipts − On-order receipts
Use the same retail valuation convention throughout. Markdowns represent reductions in the retail book value of merchandise; they are not extra units sold. At constant other inputs, including markdowns increases required receipts. Do not add retail markdown dollars to a cost-valued plan.
For a simplified cost-value plan, replace sales with the cost of planned units sold and use cost-valued opening stock, ending stock and incoming commitments. Account for any other planned inventory reductions under the same convention. Purchasing cash timing is a separate schedule.
A worked retail plan
Assume the following month plan; all inventory and on-order figures are at retail value:
| Input | Amount |
|---|---|
| Planned net sales | $22,000 |
| Planned markdowns | $2,000 |
| Desired month-end stock | $50,000 |
| Beginning-of-month stock | $40,000 |
| Outstanding receipts scheduled this month | $12,000 |
Required receipts = $22,000 + $2,000 + $50,000 − $40,000 = $34,000
Remaining OTB = $34,000 − $12,000 = $22,000 at retail
If planned purchase cost is 48% of original retail value, the simplified cost equivalent is $22,000 × 0.48 = $10,560. That assumes a 52% initial margin measured against retail, not a 52% markup on cost. Apply actual item costs when selecting the order; a mixed assortment may not share one ratio.
A negative OTB indicates commitments exceed this plan. Review cancellations, delivery timing, markdowns and realistic demand. Increasing the sales forecast solely to make the budget positive does not solve the exposure.
Keep time and ownership consistent
Beginning stock is the snapshot at the start of the planning period, not today's live balance. A mid-month revision must account consistently for actual sales, receipts and markdowns to date rather than substituting current stock into an unchanged full-month formula.
Include only the on-order receipts scheduled for the period being planned. When a $4,000 retail-value shipment moves into next month, update both periods; when it arrives, move it from on-order to received without counting it twice.
Distinguish owned stock and commitments from consignment. Consigned goods can affect physical availability and assortment, but the payment and ownership model may differ. Use a consistent scope for the plan and a separate settlement schedule where needed.
OTB, reorder point and PAR answer different questions
| Planning tool | Decision |
|---|---|
| OTB | How much room remains in this period's merchandise plan? |
| Reorder point | When should this item's replenishment be triggered? |
| PAR level | What inventory position should this item be replenished toward? |
| Cash forecast | When must the business fund the commitments? |
A positive OTB is permission to evaluate buys, not an instruction to spend the whole amount. Check item demand, existing inbound stock, supplier packs, criticality and loss risk before selecting quantities.
Connect the budget with purchasing evidence
LineNow keeps purchase orders, supplier replies and receiving connected. Use those records to inspect an outstanding commitment, a changed delivery date and a partial receipt, then reconcile them with the merchandise plan and accounting data.
If automatic OTB recalculation or enforcement is required, demonstrate the valuation basis, period snapshots, permission rules and a budget-exceeding order. Generic PO tracking alone does not establish those controls. The operator responsible for the assortment still needs to resolve a conflict between the plan and an urgent replenishment.