Avoid common mistakes in inventory management for small business
Inventory Management for Small Business – 5 Common Mistakes and How to Avoid Them
When you decide to start a business, your first thought isn’t likely to be: “Yay! I get to manage inventory!” It’s not the most glamorous part of being an entrepreneur. But managing your inventory well can mean the difference between a flourishing business and a struggling one.
Imagine a customer visiting your business in search of a particular item that you sell. What will the impact be if they don’t find it because it’s out of stock? At a minimum, you lose that sale.
In some cases, you may lose the customer (especially if this is a recurring experience). If the customer talks about it, it could begin to affect your business’s reputation. And it’s frustrating for your staff to deal with disappointed or annoyed customers, which can lead to a drop in morale.
Clearly, Inventory Management for Small Business Merits Attention.
Businesses that maintain a large number of items in inventory may find it most effective to hire an experienced inventory manager for this task. But in many smaller operations, that won’t be an option. This makes it even more important that you have a good system.
Software for inventory control for small business will help you tackle this important task effectively, even if you have little experience managing inventory.
As you research the options and set up your inventory management system, you’ll want to avoid some of the common errors that trip up small business owners in this area. The list below will alert you to them and offer tips to avoid them.
Mistake #1: Keeping Too Much Stock on Hand
In an effort to prevent lost sales and disappointed customers, some store owners choose to keep a large amount of inventory on hand.
There are several disadvantages to this approach to inventory management for small business. It ties up your capital, increases warehousing costs, and products could become damaged or expire before being sold.
Aging inventory can be difficult to sell, especially items that have expiry dates. Not to mention the impact this has on the balance sheet of a business. You may find you need to mark it down or sell it to a liquidator. All of these factors erode profits.
How to Avoid IT:
Learn to forecast how much supply you really need, and plan to your purchasing accordingly. You don’t need a crystal ball for this. Analyzing past sales can give you a pretty good picture of what you need.
If you’ve been selling 25 widgets and 60 grommets every month for the past several months, it’s a pretty good bet you’ll need at least that much over the next several months as well.
Take a look too at when the sales occur. Do some items move more quickly at a certain time of the month? Are some of your offerings seasonal, like school supplies or winter gloves? An inventory system for small business can be very helpful in projecting future needs based on sales history.
Mistake #2: Unreliable Inventory Records
Knowing how much you need is the first step. But to know when to order, you also need to know how much you have at any point in time. Mistakes can easily creep in when recording incoming inventory or when filling orders. And you may have some loss to pilferage as well.
How to Avoid IT:
Software for inventory control for small business is your best option. Use a barcode scanner to reduce data entry errors. Since human error (and shoplifting) can’t be 100% eradicated, experts recommend a system known as “cycle counting.” Each day, do a physical count of a few items. Then compare that to your computer records. Do it more often with high-turnover items.
Mistake #3: The Shotgun Approach
The longer the list of items your business maintains in inventory, the more resources it takes to track it all. But it doesn’t all require the same amount of attention. Doing detailed monthly forecasts and taking frequent stock count of slow-moving items is not an effective use of your resources.
How to Avoid IT:
Pay closest attention to the items that are in highest demand. You’ve heard of the Pareto principle, also known as the 80-20 rule? That applies to inventory management for small business, too. It’s likely that 20% of your inventory items cover 80% of stock turnover.
Focus on forecasting, tracking stock, and reordering those items – your “A” priority items. The next 30% of your inventory list – the “B” items, will cover about half of the remaining sales. The rest make up your “C” items – the slow movers that make up the final 10% of your sales.
Mistake #4: Using the Wrong Tools
Excel or Google Sheets might seem like the perfect tool to track your inventory when you’re getting started. But it won’t work well for long. Soon you’ll feel like you’re trying to pound a nail with a screwdriver. Spreadsheets also don’t adequately protect your data. They can be easily deleted, or changes can be lost. Multiple copies can contain conflicting data. And sharing a spreadsheet among multiple users can be problematic.
How to Avoid IT:
Use software that’s designed specifically for inventory management for small business. Some accounting programs, like Quickbooks for example, include inventory features, so that’s a better option than a spreadsheet.
An even better choice is small inventory management software that was designed for that specific purpose. The best inventory management software for small business will offer additional features, such as collecting customer details, optimizing workflow, etc.
Mistake #5: Neglecting to Plan for Disaster
Once you’ve setup your chosen inventory system for small business and input all your inventory data, you’re set. Right? Well, almost. What will happen if your hard drive fails, or your computer is stolen, or the office is flooded?
How to Avoid IT:
Fortunately, there are lots of options. Cloud services such as Dropbox can be setup to automatically store a backup copy of your data on the internet. Or you can go the hardware route and backup your data to a USB thumb drive or an external hard drive. If you choose this route, make sure to a) have a routine to do it regularly, and b) store the backup media offsite, like at home, or with your accountant.
We hope this list helps you avoid some of these common pitfalls. Inventory management for small business can be fairly painless when you choose a good inventory system for small business.
Talk to an expert for a painless solution to help avoid pitfalls.