Discover practical tips and strategies for managing inventory in your small business. Learn how to streamline stock control, reduce costs, and boost efficiency with our expert guide.
It’s super important to regularly check in on your small business to make sure it’s headed in the right direction. One key area to focus on is inventory management.
How’s your small business doing with managing inventory? Are you able to keep the right products in stock when customers want them? Have you missed out on sales because of stockouts? Or maybe you’re losing money because of excess inventory that’s just sitting there.
In this complete guide, we’ll give you the lowdown on all things small business inventory management. We’ll explain what it is and why it’s important, thenget into some simple inventory management techniques, and top tips for keeping your inventory under control. Let’s get started!
What is inventory management?
Inventory management (AKA inventory tracking or stock management) is basically a fancy way of saying, “Let’s make sure we’ve got the right stuff, in the right amount, ready to sell when people actually want to buy it.” Sounds simple, right? When you nail this, you keep your storage costs low and your sales high.
Managing inventory well means you’ll always have enough products without overstocking and tying up your money in stuff that just sits there. Plus, you won’t have to worry about stuff expiring, getting outdated, or taking up space in your warehouse for no good reason.
The importance of inventory management
Inventory management isn’t just some boring back-office thing—it’s a big deal for your business! It’s all about making sure you have the right products, in the right quantities, at the right time. Here’s why good inventory management is crucial:
Keeps your cash flow healthy
If you’ve got $10,000 worth of stuff just chilling in your storeroom, that’s $10,000 you can’t use to grow your business, pay bills, or invest in something new. Effective inventory management helps you figure out how much inventory you actually need, so you’re not tying up cash unnecessarily.
Reduces costs
Inventory is expensive to store, especially if you’ve got a lot of it. You’ve got to pay for storage space, insurance, security, and more. And don’t forget about inventory shrinkage—when items get lost, damaged, or even stolen. Good inventory management helps you avoid carrying excess inventory, reducing these costs.
Prevents stockouts and lost sales
Nothing’s worse than a customer wanting to buy something, and you don’t have it in stock. That’s a lost sale right there (ouch!) If this happens often, customers might stop coming to you altogether. Good inventory management means keeping track of inventory levels in real time, so you know when to reorder before you run out. And that means keeping your customers happy and your sales up!
Stay ahead of trends
With a good handle on your inventory, you can spot sales trends and respond quickly. You’ll know what’s hot and what’s not, so you can stock up on bestsellers and ditch the duds. Be the trendsetter, not the trend-follower!
Smoother day-to-day operations
When you know exactly what you have and where it is, your team spends less time hunting for items or dealing with stock issues. This means more time for selling and less time for scrambling. Efficient business = happy employees!
Turn inventory faster
Effective inventory management helps you keep things moving. Fast inventory turnover means you’re not stuck with stuff that isn’t selling, reducing the risk of products becoming outdated.
Make smarter decisions
With clear inventory data, you can make better business decisions. You’ll know what’s selling and what’s not, so you can adjust your strategy and make moves that grow your business.
Benefits of effective inventory management for small businesses
Unlike the big guys with deep pockets, small businesses can’t afford to make mistakes with their stock.
This is why it’s so crazy to us that a massive 43% of small businesses either don’t track their inventory or use a manual process (seriously?! It’s 2024, people!) This can lead to overstocking things that aren’t selling or, even worse, running out of stuff that customers actually want. Both of these mistakes are cash flow killers and can make you risk losing money.
Getting the balance just right (having enough stock without overdoing it) is especially important for small businesses. Too much inventory and your cash is tied up in products collecting dust. Not enough and you risk stockouts, which means missing out on sales and turning away customers.
So now you’re probably wondering how to manage small business inventory, right? Well, by using smart inventory management tools and software, small business owners like yourself can keep an eye on their inventory levels in real time, forecast what’s going to sell, and avoid those costly mistakes. We’ll get on to this more later.
Understanding your inventory needs
Figuring out your inventory needs is all about knowing what products to stock, how much of them to have on hand, and when to reorder. It’s not just guessing—it’s about understanding your business’s unique patterns and customer demand. Are there items that sell out quickly and others that barely move? Do you see a spike in certain products during specific seasons or holidays? These are the kinds of insights that can help you manage your inventory better.
Start by looking at your sales history. This will give you a clear picture of what’s been selling and what hasn’t. Pay attention to trends—what items are flying off the shelves, and which ones are collecting dust? Understanding these patterns helps you stock more of what sells and avoid tying up cash in items that don’t.
You should also consider lead times—how long it takes to get products back in stock once you place an order. If something takes a while to arrive, you might want to keep a bit more on hand. On the other hand, if a product is easily restocked, you don’t need to hold as much inventory. Balancing these factors helps you avoid stockouts and reduce excess inventory.
Finally, keep an eye on your inventory turnover rate, which tells you how often you’re selling through your stock. A higher turnover rate means you’re moving products quickly, which is usually a good sign. But if your turnover is too low, it might mean you’re overstocked or not moving items as fast as you’d like. By understanding your inventory needs, you can keep your stock levels just right—ensuring you have what your customers want without wasting money on excess inventory.
Industry-specific solutions for inventory management
Retail
For retailers, inventory management is all about balancing stock levels to meet customer demand while minimizing excess. Key solutions for retail inventory management include:
- Real-time tracking: Use retail POS systems with real-time tracking to keep an eye on stock levels across all your stores. This helps you quickly tackle stockouts or overstock issues and keeps your customers happy. No more “Sorry, we’re out!” moments.
- Automated reordering: Setting up automatic reorder points can help you restock popular items before they run out. This is especially useful for high-turnover products and seasonal items.
- Sales analytics: Analyzing sales data helps you understand trends, forecast demand, and adjust your inventory accordingly. You can see which products are hot and which aren’t moving, allowing for smarter buying decisions.
- Seasonal adjustments: Retail often sees spikes in demand during holidays and sales events. Planning your inventory to accommodate these fluctuations ensures you’re prepared for peak times without overstocking during quieter periods.
Hospitality
In the hospitality industry, managing inventory is crucial to keeping operations smooth and costs under control. Here’s how to handle inventory in hotels, restaurants, and other hospitality settings:
- Perpetual inventory systems: A perpetual inventory system keeps track of inventory levels in real time as items are used or restocked. This is essential for managing perishables and ensuring you always have what you need on hand.
- Menu planning and portion control: For restaurants, controlling portion sizes and planning menus based on inventory helps reduce waste and manage food costs. Knowing how much of each ingredient you need helps you buy just enough and keep things running efficiently.
- Supplier management: Building strong relationships with suppliers and having clear communication channels ensures you get timely deliveries and can quickly address any supply issues.
- Inventory audits: Regularly conducting physical counts of your inventory helps ensure accuracy and catch any discrepancies early. For perishable goods, frequent checks help reduce spoilage and ensure that stock is fresh.
- Integrated POS systems: An integrated hospitality POS system connects sales data with inventory levels, automatically updating stock counts as transactions occur. This helps manage inventory in real time and ensures you’re never caught off guard.
Setting up your inventory management system
Getting your inventory management system up and running can seem like a big task, but with the right tools, it’s a breeze. One standout option is Epos Now—a powerful system designed to simplify inventory management for small businesses.
Why Epos Now?
- Easy setup: Epos Now is known for its straightforward setup process. You don’t need to be a tech guru to get it going. Just follow the user-friendly instructions, and you’ll be up and running in no time.
- Real time inventory tracking: With Epos Now, you can track inventory levels in real time. This means you’ll always know exactly what’s in stock and what’s running low, helping you avoid stockouts and overstock situations.
- Automated reordering: Epos Now lets you set up automatic reorder points. When stock levels drop below a certain threshold, the system can alert you to reorder or even place orders for you. This keeps popular items available and helps you manage inventory more efficiently (never miss a beat on reordering!)
- Comprehensive reporting: The system provides detailed reports and analytics on sales and inventory. You can dive into sales trends, monitor inventory turnover, and make data-driven decisions to optimize your stock (turn insights into action!)
- Integration with other tools: Epos Now integrates smoothly with other business tools you might use, such as accounting software and CRM systems. This creates a seamless workflow and keeps all your business operations connected.
- Mobile access: Manage your inventory on the go with Epos Now’s mobile features. Check stock levels, view reports, and make updates from your smartphone or tablet (keep control in your pocket!)
- Scalability: As your business grows, Epos Now grows with you. It’s designed to handle everything from small shops to larger operations, so you can scale up without a hitch (grow your business without worrying about outgrowing your system!)
Inventory management best practices
How do small businesses keep track of their inventory? Let’s spill the beans on best practices:
- Nail your forecasting: You’ve got to be able to predict what you’re gonna sell. To do that, look at past sales (check your online dashboard if you use Epos Now’s complete POS solution), market trends, expected growth, the economy, promotions, marketing efforts, and all that jazz. Basically, put on your best fortune-teller hat.
- FIFO is your BFF: This inventory management system stands for “first in, first out.” It means you should sell your oldest stock first—especially important for perishable items like food and makeup. No one wants to buy expired goods, trust us. Nonperishable inventory prevents inventory shrinkage and keeps your stock levels fresh. Place new inventory at the back so the older products stay up front, ready to move.
- Say goodbye to slow-movers: Do you have items that haven’t sold in the last six to 12 months? Time to reevaluate those inventory items. Consider using inventory management tools to track inventory turnover and decide which products are tying up cash flow and occupying valuable space. Maybe it’s time for a sale or a promotion to clear out that excess inventory. Free up that space and cash for something better!
- Do a stock check: Whether you have a small business or a large one, physical inventory counts are key to managing inventory effectively. Even with robust inventory management software integrated with your POS system, you still need to do regular inventory counts to make sure what’s on the shelf matches your inventory records. Try inventory cycle counts (we’ll get onto this more later) for ongoing accuracy, especially for fast-moving items.
- Go cloud-based: good inventory management software solution can save you a lot of headaches. It keeps your inventory data updated in real-time, tracks inventory levels across multiple locations, and integrates with your POS system to automate inventory management. This way, you get low-stock alerts before you hit inventory shortages.
- Keep tabs on stock 24/7: Use an inventory tracking system to monitor your stock levels in real time. Prioritize tracking inventory that’s expensive or high in demand. The right inventory management software will do most of the heavy lifting, helping you improve cash flow and minimize the cost of goods sold (COGS). That’s more money in your pocket, and less tied up in inventory!
- Fix your gear faster: Your equipment is gonna break sometimes—surprise! Make sure you’re keeping an eye on all your machinery and its parts, so you know when something’s about to go kaput. That way, you can fix it before it becomes a big (and costly) problem.
- Don’t skip quality checks: Make sure all your stuff looks good and works well. Employees can do quick checks during stock audits, looking out for damaged or messed-up labels.
- Hire a stock controller: If you’ve got a lot of inventory, consider getting someone to manage it full-time. They’ll handle purchase orders, receive deliveries, and make sure everything matches up with what was ordered.
- Learn your ABCs: Keep a closer eye on high-value items by grouping inventory into A, B, and C categories. A items are pricey but don’t sell a lot, B items are in the middle, and C items are cheap and sell like hotcakes.
- Think about drop shipping: Don’t want to handle inventory yourself? No problem. With drop shipping, a wholesaler keeps the stock and ships it directly to your customers when they buy from you. It’s great for online stores but works for any business.
- Prepare for multiple sales channels: Whether you’re managing inventory for online sales channels, retail locations, or a mix of both, make sure your inventory management systems can handle multiple locations and sync inventory data across all sales channels. The more organized you are, the less likely you’ll risk losing money!
Inventory cycle counting
Inventory cycle counting is a simple way to keep your stock accurate without the stress of a big annual count. Instead of doing one giant count a year, you regularly check small sections of your inventory. It’s like giving your stock a routine check-up.
Why bother? First, it helps you spot mistakes and fix them early, so you avoid nasty surprises. Plus, it’s less disruptive than a full inventory count because you’re only dealing with a part of your stock at a time.
Regular counts also keep your inventory records up to date, which helps with ordering and planning. This way, you’re less likely to run out of hot items or end up with too much of something.
Overall, cycle counting helps you catch problems early and keeps your inventory running smoothly. It’s an easy way to stay on top of things and keep your business on track.
Reconciling inventory discrepancies
Reconciling inventory discrepancies is all about sorting out the differences between what you think you have and what you actually have. When your physical count doesn’t match your records, it’s time to figure out what’s going on and fix it.
First, double-check your counts. Sometimes, discrepancies happen just because of simple counting errors or misplacements. Make sure all the items are where they’re supposed to be and that your count is accurate.
Next, dig into your records. Look at recent transactions, returns, and any stock adjustments. Sometimes discrepancies are due to errors in data entry or missed updates. Correcting these errors can bring your records back in line with your physical stock.
If discrepancies keep popping up, it might be a sign of bigger issues, like theft or systematic errors in your inventory process. In such cases, it’s important to investigate further, tighten up security, or refine your inventory management practices.
By regularly reconciling discrepancies, you keep your inventory accurate and avoid costly surprises. It’s a key part of maintaining smooth operations and making sure your stock levels are always right where they should be.
Common mistakes to avoid in inventory management
Managing inventory isn’t always straightforward, and mistakes can easily creep in. Here are some common pitfalls to watch out for:
- Skipping regular counts: Don’t rely only on annual counts. Missing regular checks can lead to big surprises. Make sure you’re counting your stock often to catch any issues early (regular counts keep you in the loop!)
- Wrong data: If your records aren’t accurate, your stock levels won’t be either. Update your records every time there’s a change to keep your numbers right (accurate data is crucial!)
- Not forecasting: Failing to predict what you’ll need can cause problems. Use past sales data to figure out what you’ll need in the future so you don’t end up with too much or too little stock (plan ahead to avoid issues!)
- Unreliable suppliers: Relying on suppliers who don’t deliver on time can mess up your stock. Work with dependable suppliers and track their performance to keep things running smoothly (choose suppliers wisely!)
- Ignoring seasonality: Not adjusting for seasonal changes can lead to problems. Stock up on seasonal items in advance and reduce inventory when they’re out of season (stay ahead of the seasons!)
- Poor staff training: If your team isn’t trained well, mistakes will happen. Make sure everyone knows how to manage inventory correctly (well-trained staff is key!)
- Old-tech or manual methods: Using outdated methods or manual tracking can lead to errors. Invest in modern inventory management software to simplify the process and reduce mistakes (upgrade for better management!)
Avoid these mistakes to keep your inventory under control and your business running smoothly.