Inventory is one of those concepts that looks really simple but quickly becomes complicated. On one level, it is nothing more than a record of how much stuff you have for sale and how much it costs. On another level, it has a huge effect on taxation and cash flow. The owner of a micro-business keeping books on a cash basis may simply pretend that there’s nothing special about inventory as long as the costs and sales are recorded.
That’s shortsighted. If you have a product to sell, tracking your inventory will help you figure out what sells and what doesn’t so that you can plan your stock and your pricing better. Even if all you do is sell crafts at fairs. (And you certainly don’t want to tell a customer that you aren’t sure if something is in stock.)
The simplest inventory system is a record of each item in hand, that is changed as items come in or go out. A used bookstore might keep an index card file of each book in the store. As a book is sold, the card is pulled. That creates a record of what is on hand, and another record of what was sold.
A larger inventory system works the same way, but on a grander scale. It creates a record of what the business purchased and what the business sold. The item moves from one list to the other when a sale takes place. A review of inventory can then show what sold, when, and for what price.
In general, small businesses don’t do a great job with tracking inventory. The 2016 Wasp Barcode Technologies State of Small Business Report found that seven percent of small businesses don’t track inventory at all (and it’s not because they don’t have inventory; 19 percent of the companies in the survey reported having no inventory). Another 15 percent use a pen and paper system and 24 percent use a spreadsheet.
If you have inventory, you need to track it. A paper or spreadsheet inventory is better than none at all, but it does not have the flexibility or scalability of an inventory kept in a database. Keeping inventory in a database app such as Microsoft Access instead of in a spreadsheet is a start. Access is part of the MS Office Suite and may be on your computer right now; Microsoft provides online training information about how to use it for inventory.
Most businesses find that they need to use something else. Wasp Barcode Technologies surveys small businesses as part of its marketing program; it is one of several companies that provide barcode scanning systems for inventory management.
Ideally, a company would set up a scalable inventory system before it opens its doors. The reality is different. If you’re in the market for an inventory system, you want to consider a few different things. One of the first is how your inventory system will connect to other parts of the company. Inventory value is important for tax and accounting purposes, so you will want to connect the inventory system to the financial system. (In fact, Intuit has a directory of companies that make inventory systems that work with QuickBooks, if that’s how you keep your records.)
You will also want inventory information to help plan your sales and marketing. Depending on your business and where you get your inventory, you will have some specific interests here. Do you want to know what sells the fastest? What is the most profitable? How much pilferage you have? A boutique will need different reports than a microbrewery, and the inventory needs will reflect that.
A final consideration is how easy it will be for your employees to use the system. They are the ones who will be setting up and maintaining the system. If they forget to pull the index card, you’ll think you have items for sale that you don’t. If they become overwhelmed with data entry, they may make mistakes that create problems down the line. If the system gets hung up when checking out a customer, the customer may walk and take business elsewhere.
Because of the interplay with the financial system, your company’s accountant may have a lot of good ideas about an inventory system that would work with you. Most inventory systems require customization and training, so consider that when comparing prices (yes, there are free apps you can download to your phone, but most of those are, well, worth nothing for a business of any size).
Another great resource for your research is your local Small Business Development Center. These are organizations affiliated with the Small Business Administration that provide free consulting and free and low-cost training programs on operational issues.