Inventory is the lifeblood of many businesses – often the largest asset on the balance sheet and the biggest revenue-generator. Poorly managed inventory can do serious damage to your bottom line: without a clear strategy for the flow of goods in and out, you’ll struggle to meet demand and watch mismanaged stock corrode your profits. These tips will help you avoid common, costly inventory problems.
Implement a system for accurate stock tracking
Whether you have a modest stockroom or a large warehouse, know precisely when products come in or ship out so you can re-stock efficiently. Factor in lead time when calculating your basic stock so you don’t run out before new supplies arrive. An automated inventory management system tracks fill rate and returns across all products and tells you exactly how much stock you have at any time.
Avoid excess inventory
Excess inventory drains your business in several ways – extra overhead, higher insurance, reduced liquidity, and space that could hold more profitable products. Don’t buy large orders just because they’re discounted; they may take far longer to sell than expected. Calculate and stick to a realistic safety margin so you only buy what you’re reasonably sure you can sell, and liquidate overstock through discounts or by returning it to your supplier (worth it even with a re-stocking fee).
Prioritise your inventory needs
Always know which products have the highest turnover and keep them on hand. One approach is to divide your inventory into three groups (A, B and C) based on their dollar impact – so you know which items to buy more of and avoid tying up cash on non-essentials.
Final tips for better inventory control
If you’re upgrading your accounting software, look for a solution with inventory pricing and availability features, and invest in training so your staff can use the tools well. With better data at your fingertips, you can respond quickly to customer queries, suggest substitutions and offer valuable add-ons – so upselling becomes second nature. Savvy owners stop thinking of accounting software as just a financial tool and start using it as a comprehensive tool for business growth.