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Inventory Management Tips: How to Manage Small Business’ Inventory



Inventory Management Tips: How To Manage Small Business Inventory

Inventory management is an integral part of any business, and is an especially important practice for smaller or new businesses. 

There is no one size fits all for effective inventory management, but as a new business owner or someone with little previous inventory management experience you may be wondering where is best to start. In this post we outline some useful guidelines and tips for creating a management framework to suit your business and more effectively manage your stock.

Inventory Management for Small Businesses

Inventory management can be simply defined as the process or systems in place to manage stock and other inventory. Effective inventory management ensures that the right products are available in the right quantity to be sold at the right time to meet demand. Effective management can also help to avoid running out of products or having too much cash tied up in unsold stock which can create cash flow problems.

Inventory management is as essential to eCommerce businesses as it is to brick and mortar stores. While some eCommerce businesses may not physically see or handle their stock, effective inventory management should still be a high priority.

Inventory Management Tips for Small Businesses

To help any business refine their inventory management processes we have compiled a few inventory management tips to help get even those brand new to handling stock, heading in the right direction.

  • Sales forecasting

Understanding what you are expected to sell in the upcoming weeks or months is the foundation of effective inventory management. This is most easily done by looking at previous sales history for the same periods, if you have it available, as well as seasonal trends and considering any upcoming promotions. From this you will be able to easily identify what products need to be restocked and how much more or less of certain products you need to match your predictions.

  • The FIFO approach

FIFO stands for ‘first in, first out’. This approach is ideal for businesses selling perishable goods, as it ensures that no stock is lost to expiration dates. This management method involves selling products in the same order in which they were purchased or created, and restocking from the back of the shelves to the front.  

  • Management software

POS (point of sale) software can play a huge helping hand in inventory management. Most POS systems now have built in analytics software, and some even provide real-time figures for continuous stock management. Through a POS system, inventory management is almost entirely automated. When a product is sold, the system will automatically update you stock levels so you are aware how much of certain products you have sold and when you need to restock.

  • Standardizing processes

Once you have refined an inventory management practice or routine that works for your business, it is important to reinforce this and make it a standardised process. This will ensure consistency in inventory management regardless of the season, product or member of staff in charge of management for that day.

  • Auditing

Even if you have decided to utilise inventory management features on your POS system, manual auditing is also good practice to ensure that stock levels on your system are accurate. This only needs to be done periodically if you are already using a POS inventory management system. Many businesses choose to do this at the end of the year. 

  • Drop shipping

Many businesses, particularly brick-and-mortar shops often choose to rent a warehouse or other storage space to store their inventory. With dropshipping, businesses can order their stock to be delivered straight from the manufacturer to the retailer or even straight to the customer. Drop shipping only requires an internet connection to set-up and makes storing and managing stock levels much easier, cutting out the middle-man in the process and making the restocking process faster. 

How To Find The Best Inventory Management Software for Small Businesses

Inventory management software offers one of the most convenient methods of keeping on top of your stock levels and reordering. There are some key considerations any business owner should make when choosing the right inventory management software. 

Firstly it is important to decide whether real-time sales analytics is important for your stock management. Businesses who make a large number of transactions each day may find this to be more of a necessity than smaller stores who make fewer daily transactions. 

Sales forecasting is also an integral part of effective inventory management for small businesses, and some management software has forecasting capabilities which can further streamline inventory management processes. 

If your business has more than one location whether physical or digital, and you handle stock in a central warehouse, you may find that a system with cross-channel tracking is important for your management processes. By amalgamating all of your sales and stock levels into one centrally accessible piece of software or spreadsheet, you can also create bespoke forecasts for each of your outlets and ensure that every one of your stores has the right levels of stock.

Benefits of Accurate Inventory Management for Small Businesses

Inventory management can have a huge range of benefits for small businesses beyond ensuring the correct levels of stock. Some other reasons to consider refining your inventory management processes include;

  • Saving time

Having a good overview of your inventory or through using inventory management software, you can save time on manual stock management or auditing. While occasional auditing is still recommended regardless of how sophisticated your management software is, it could save you and your employees time and energy that can be better used elsewhere in your business.

  • Saving money

There are a whole host of ways that effective inventory management can save your business money. From improving supplier management relationships to reducing excess stock, automating processes to free up staff and reducing costly mistakes from human error.

  • Reduced risk of overselling

Overselling can have a huge impact for eCommerce businesses. Overselling occurs when more of a product is sold than is available. It can be an easy mistake to make for online retailers whose product listings are not synced with stock levels. Overselling can potentially damage the reputation of your brand and certain eCommerce platforms such as eBay and Amazon will even suspend businesses for overselling.

  • Avoid excess stock

While excess stock may not seem like a huge problem from the outset, it can create significant cash flow problems which can be fatal to the survival of small businesses. Having cash tied up in unsold stock can mean there is less cash available to cover other expenses such as website hosting fees or warehouse renting costs. If your business holds stock within a warehouse, excess stock can also take up valuable space and can actually lead to understocking of other products due to lack of available space.

  • Improved business decision making

Through effective inventory management, businesses can better predict and monitor sales, creating the opportunity for more informed and data-driven decision making. For example, with more data business owners can make more informed decisions about which suppliers to use and which tools will better streamline processes to suit their needs.


For small businesses effective inventory management can make all the difference to cash flow and profit. With small businesses generally having less cash at their disposal, particularly in the first few years of trading, it is important to consider any process that will help save time, money and boost sales.