Imagine you’re at the starting line of a hurdles race. You hear the pop of the gun and take off running.
But wait. You hit your first hurdle within five feet of the starting line instead of the usual 45 feet. With no time to build momentum, you smash into it and fall to the ground.
Sometimes, that’s what it’s like to launch a small business. Every time you move a few steps forward, something sets you back. It’s hard to predict where your hurdles will be.
And as the business expands, things like managing inventory only become more complex.
With the right tools and a solid strategy, tracking and managing your small business’s inventory won’t be a challenge. Scroll to the last section for a quick look at how Fishbowl will help you, or keep reading to learn more about inventory management specifics.
What is inventory management?
Inventory management isn’t just knowing what’s on your shelves or in your warehouse. It’s the entire process of ordering, storing, distributing, and selling your inventory, which covers everything from raw materials and components to dunnage and packaging.
Here’s everything your inventory management strategy should do:
- Track: Know exactly how much inventory you have on hand and where it’s located.
- Forecast: Predict future demand to ensure you don’t run into problems from low stock or overstocking.
- Order: Place orders with suppliers at the right time and in the right quantities.
- Receive: Accept and verify incoming shipments.
- Store: Organize and store inventory for warehouse management, with minimized handling and accurate inventory counts.
- Use: Track how you use inventory in production or sales.
- Value: Determine the financial value of your inventory.
- Alert on stock levels: Notify you of low inventory levels to prevent stockouts and ensure you meet customer demand.
Why is inventory management so important for small businesses?
Developing an effective inventory system can be the difference between stumbling and succeeding. Here’s how.
- Cost savings: Optimizing inventory levels lowers storage costs and avoids tying up too much capital in excess stock. You also reduce the risk of spoilage or obsolescence.
- Improved cash flow: Inventory is both an asset and a drain on cash flow. You have product to sell, but you might be paying more to acquire, store, and relocate the excess. Efficient inventory management helps you meet demand without overspending.
- Increased productivity: Your team spends less time on manual tasks like counting and tracking inventory, freeing them up for other important activities.
- Customer satisfaction: Having the right products in stock when customers want them is key to building loyalty and repeat business.
- Data-driven decisions: Accurate inventory data lets you make informed decisions about purchasing, production, and pricing.
Small business inventory management methods
There’s no one-size-fits-all solution for managing inventory. You’ll need to choose the method that best fits your needs and budget — but remember that you’ll have the most success with a solution that allows you to scale.
Pen and paper
If you run a very small business with simple inventory needs, you might get away with managing inventory the old-school way — with a pad of paper and a pen. The pen-and-paper method is inexpensive and attractive if you’re operating on a tight budget. But since managing inventory by hand is time-consuming and error-prone, miscalculations and lost notes could ultimately cost more.
Excel spreadsheets
Managing your inventory in Excel (or a similar spreadsheet program) is a definite step up from pen and paper. But spreadsheet tracking isn’t the most scalable method — it won’t take long for your sheets to become unwieldy (and probably inaccurate) as your inventory grows. And unless you’re a statistics wizard, too many data points might lead to confusion and slow you down.
Just-in-time (JIT)
JIT is a lean inventory management approach that involves ordering only as much inventory as you need to fulfill customer orders. It’s a great way to reduce inventory holding costs, but you’ll quickly get into trouble if you don’t have flawless forecasting and strong supplier relationships.
Inventory management software
Software designed specifically for managing inventory is the most efficient and scalable option. Programs like Fishbowl, Zoho Inventory, or even retail-focused point-of-sale (POS) systems like Square for Retail make it easy to automate most tasks, get real-time data, and integrate with your accounting software and other business systems.
A dedicated inventory management system is a bigger upfront investment than the other methods. But by streamlining your operations and better understanding your data, using software to manage inventory ultimately increases profitability.
Inventory tips and best practices for small businesses
If you’re new to inventory management, you could feel overwhelmed by all the information here. It’s a lot to take in, but these tips will help you navigate the process and keep your business running smoothly.
1. Perform regular audits
Don’t put all your eggs in the inventory software basket. Conduct regular physical counts to confirm that your records are accurate. Inventory audits reveal discrepancies due to theft, damage, or data entry errors before they become major problems. Set a schedule for your audits and stick to it.
2. Use cycle counts
You don’t have to shut down your entire operation for a full inventory count. Try cycle counting instead. You’ll count a smaller portion of your inventory each day or week, spreading the task over time. This audit method is less disruptive and helps you pinpoint problem areas quickly.
3. Cross-train employees
It’s always smart to train multiple employees to complete essential business tasks, and inventory management is no exception. Cross-training a few team members prevents bottlenecks and ensures your business continues running smoothly if one employee quits or goes on leave.
4. Track key metrics
Keep a close eye on valuable metrics like inventory turnover ratio, days sales of inventory (the average number of days it takes to sell off inventory), and gross profit margin. These metrics give you insights into your inventory performance and help you identify areas for improvement.
5. Use SKU rationalization
If you haven’t already, start using stock keeping unit (SKU) numbers to give each product a unique identifier that’s easy to track. Then, routinely review your product catalog and use SKU rationalization to remove items that have become unpopular or obsolete. By keeping only the products that add to your profit margins, you’ll reduce storage costs, free up valuable warehouse space, and put all your focus on the merchandise that drives sales.
6. Follow the FIFO method
If your company makes or sells products that expire or become obsolete over time, implementing the first in, first out (FIFO) method is a must. With FIFO, you’ll use or sell the oldest inventory first to prevent spoilage, reduce waste, and ensure your products stay fresh.
7. Commit to continuous improvement
Inventory management is an ongoing process. Review your systems regularly to identify areas for improvement and implement changes as needed. And, like most areas of business, inventory management tools and techniques continue to grow and change, so keep up to date on industry trends and best practices to stay ahead of the curve.
The benefits of Fishbowl’s inventory management software
So, what makes Fishbowl the best inventory management system for small businesses like yours? Here are some of the top benefits.
Cut costs
For many businesses, inventory is the biggest expense. Small businesses don’t have money to waste, so they can’t afford to tie up too much in idle inventory. Using an inventory management system like Fishbowl helps you order just enough product or goods to avoid a shortage or overstock. This optimal amount lets you “trim the fat” with lean inventory management, creating a fluid supply chain.
Increase productivity
Inventory management involves juggling tasks and monitoring reports. Business owners must constantly track their stock levels, how much they need, and how long it takes to receive new inventory. Fishbowl automates these time-consuming processes, doing everything in a fraction of the time it would take to complete by hand.
Eliminate errors
Doing all your accounting and inventory management manually, whether it’s with a pen and paper or spreadsheets, opens you up to typos and other human errors. Tools like barcode scanners and inventory management software virtually eliminate these errors and improve your order management efficiency, saving you money and freeing up your time for strategic growth.
Fishbowl features you’ll love
- Access from anywhere: Access Fishbowl from your desktop computer in the office or remotely from almost any browser or device.
- Multi-location tracking: Track inventory across multiple locations and warehouses.
- Automatic reordering: Set reorder points to avoid stockouts and maintain optimal inventory levels.
- QuickBooks integration: Use the QuickBooks integration to sync your inventory, sales, shipping, and financial data.
- Reporting and analytics: Gain insights into inventory trends, sales performance, and profitability.
- Barcode functionality: Enjoy all the barcode functionality you need, from code generation to printing and scanning.
- Labor tracking: Track employee hours, project costs, payroll, and taxes.
- Streamlined manufacturing: Duplicate bills of materials and keep an eye on every stage of the production process.
Fishbowl: Big help for small businesses
With Fishbowl, your race to the finish line will be nearly hurdle-free. Our all-in-one inventory management solution helps you control stock, warehouse operations, manufacturing workflows, and so much more.
Are you ready to take control of your inventory and gain end-to-end visibility over your operations? Schedule a free demo of Fishbowl, the intuitive, scalable, and user-friendly inventory management platform.