Inventory Management for Small Businesses: Best Ways

The success of your small business depends on your ability to evaluate business needs regularly.   

But where do most small businesses fail?  

You got it right! Inventory management. A recent study found that 62% of small business failures are attributed to poor inventory tracking.

Impact of inventory management on business success  

Coming to your business again. Did your inventory management techniques click?

Do you get the products you need when you need them?

Some small businesses also incur losses as their products run out of stock due to poor inventory management. Maybe you are among the ones who lost money due to excessive stockpiling.

In most circumstances, your small business inventory management needs a revamp. And this article is all about it.   

What is Inventory Management?  

Small business inventory management is a chain of chronic activities. It starts with precise forecasting, procuring, storing, consuming, and selling stocks from the inventory.   

Definition of inventory management  

Here, we will be observing a relatively simple definition. Let’s say inventory management is a host of tactics to have the right products available to you in required quantities when you need them.   

Let’s examine an example to get a better grasp. CueCat was an aspiring startup in the US. But it ran the path of failure faster than The Flash!  

Why?

The answer lies in poor small business inventory management.   

CueCat could not develop the supply chain of a proprietary device that consumers could use invariably. At the same time, the bar code scanning service became irrelevant in due course because of a lack of focus on inventory control.   

In other words, they did not have access to the proper inventory at the right time. So, they could not build or supply the CueCat device when the market was ticking.   

Too bad they failed.

Not to worry you, but your small business could meet the same ends without the proper small business inventory control measures.

Benefits of effective inventory management

There are abundant benefits of inventory management for small businesses. Firstly, I feel that they can cut off extra stocks that incur additional expenses for the business.

You can’t simply miss out on these small savings if you’re a small business.

Moreover, we thrive in a quickly changing world. If you can’t match up with the changes in customers’ demands or expectations, you’re done for.

That’s where small company inventory management tools help you. You may also use these tools to:  

• Track inventory data in real-time and   

• Develop reporting tools for your inventory  

• Forecast the future demands

Steps to small business inventory management  

The right measures of inventory management are crucial for your small business. You can not only prevent stockouts or extra stocks using inventory management. Instead, you can reduce the volume of unsold products, too.   

Let’s check out the steps planned out by experts for better small business inventory management.   

Step 1: Choose the inventory management method that suits your business  

Firstly, I will discuss a few factors deciding your inventory management needs. After discovering the factor(s) that impact your business, you can select the tools.  

The quantity and value of the required product are the factors that concern you the most. However, experts say that COGS is a more imminent factor.   

The cost of goods sold decides whether you can match the required product demand in the market.   

For instance, you start a business with $100. Now, let’s say your market demands 20 products every day. If the unit manufacturing cost (including inventory cost is $5, you can’t sustain the business for a day either.   

So, you need to figure out the product quantities that suit you.   

Step 2: streamlining product and vendor data  

You may use PoS software at this stage. This will help you maintain a directory of vendors you may contact for your supplies.   

Step 3: Get your purchase orders sorted  

Most small business owners lack experience. Hence, they can’t show the discipline required in decision-making.   

Pro Tip: cross-check your purchase orders to ensure actual deliveries from vendors match the description in the invoice and the payment exchanged.

Read also: Vendor Managed Inventory (VMI): Definition & Advantages

Step 4: Be cautious while receiving your inventory  

Suppliers can commit common errors. However, you must systematically check your inventory while receiving it.   

Step 5: Keep your stocks labeled  

Use product labels and price labels wisely. Many small businesses fail to anticipate COGS or other supply chain elements accurately. Hence, resulting in losses.   

Product labels, however, help keep the inventory organized. I feel that barcode labeling is a smart move for new entrepreneurs or small business owners.   

Step 6: having an organized warehouse   

It is always better to keep tabs on your inventory items. I recommend using life-sized storage shelves or hanging racks if you’re a retail business.   

Step 7: Real-time tracking  

Real-time tracking is one of the most prominent blind spots in inventory management for small businesses.   

Many small businesses don’t want to invest in PoS software.   

But acting otherwise is always wiser.   

It helps you to track every nitty-gritty detail of your sales. So, you can adjust inventory levels as an item is sold.   

Step 8: Resolve discrepancies   

Your projected QOH rarely matches the actual inventory count.   

I recommend frequently checking for discrepancies. You may encounter counting errors or other common mistakes. Hence, repeated checking can reduce these clerical errors.   

Common methods for small business inventory management  

Small company inventory management might seem complex if you don’t know the proper methods to follow. So, here is a list of the common methods you may follow.   

FIFO  

It is an acronym that stands for First-in, First Out.   

The golden rule, or so it goes, in inventory management demands a simple caution. It says that you sell out the oldest stocks first. Mostly, small businesses lack the storage facilities that make their products obsolete or unsellable in a shorter time.   

So, FiFo ensures that you are able to sell off the product before its market value depletes.   

JIT  

JIT or Just in Time approach is another golden rule that applies to inventory management. It says that you must order inventory stock when it’s actually needed.   

What are its benefits?  

Apparently, it may seem a commonplace practice. But JIT helps you to mitigate the issue of overstocking. So, you always have the leverage of the added funds. Any day, you may use that fund for contingency management.   

Moving average cost  

Experts say it is the most suitable small business inventory management approach. It is also ideal for budding entrepreneurs. Foremostly, it helps them to follow a cost-effective inventory management approach.   

To follow this method, you must do a basic calculation. You must figure out the average cost of units in your inventory. It’s a reliable way to find COGS.   

From the above discussion, we know that both these parameters are highly needed in small business inventory management.  

Best small business inventory management apps  

By now, the importance of software and tools in small business inventory management is as clear as daylight.   

Xero 

The software helps in the precise calculation of your inventory strength. And you can always make or break a business, depending on the quality of inventory data you have.   

With Xero, you can leverage various insights that help in smarter small business inventory management.   

For instance, you can track the stock levels in real time, day in and day out. At the same time, you get real-time sales reports at your disposal. The report tells you which products are performing and which ones are lagging.   

You can also use preset details to make invoices. So, your chances of excess or restrained stocks are over, once and for all.   

Zoho  

It is one of the US’s most commonly used small business inventory management tools. Already, 9643 companies use Zoho’s software in the US.   

Besides most of the benefits mentioned above, Zoho also has some add-on benefits.   

You can sync your inventory data across multiple sales channels. Therefore, you are always in the driver’s seat.   

At the same time, there are several standout benefits to consider. For instance, Zoho’s free plan gives you options like customer portal, item bundling, and drop shipping options to check all aspects of your inventory.   

Sortly

Sortly’s connectivity is unparalleled. Most apps can offer you a host of data. But how accessible is that info?  

This software lets you scan QRs to access inventory data at your fingertips. So, you can plan and sort your inventory anytime, on the go.   

Wrapping up…………  

Better small business inventory management depends on the vision and adaptability of the business owners.   

They should invest in real-time tracking, cost control, and syncing market data to the supply chain. For that, they need the right software. They also need the right small business inventory control method.   

All small business founders may read the article in-depth to determine which inventory management methods suit them.

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