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 |