Small business owners have a thin margin for error. They need to maximise every dollar they make to keep their business going and make it grow. The way you manage inventory has either a positive or negative effect on your growing company. A few mistakes can accumulate and become a bigger problem that may stunt the growth of your small business or end it.
Here are some inventory management mistakes you should learn to identify and avoid.
Bulk Purchases Reduce Costs
Some small business owners think that buying in bulk saves them money. This may be true some of the time, but you also run the risk of overstocking. You might end up with inventory you have a difficult time selling. This may have happened because of poor forecasting or a lack of understanding of product-to-market fit. Determine the demand for your products first before deciding the amount of inventory to buy.
Carry as Few Goods as Possible
Too few stocks can be just as bad as too much. Your small business might lose customers because they think you do not have enough of the items they want. Low sales may lead to cash flow problems that may be difficult to recover from. This is when proper stock management comes in. Use previous sales data and forecasting to identify if the inventory you need is enough to meet customer demand.
You Don’t Need Inventory Management for Forecasting
Sales data from the previous months can help you create a forecast; however, it is not enough to determine customer demand. A system allows you to create a more accurate forecast because it enables you to follow trends, monitor inventory KPIs, and maintain enough goods to meet the needs of customers. This data enables you to make sound financial decisions about managing your small business’ inventory.
You’ll Encounter Little to No Problems with Managing Inventory
Some companies underestimate the management of their inventory. They thought that it is just a matter of monitoring stock. However, it involves other factors such as extra costs (handling, storage and others), hiring the right staff for shifts, keeping track of orders, determining the demand for products, reducing obsolescence, and eliminating theft among others. You need a system in place and updated accounting books to reduce errors and cut expenses.
Manage Inventory Only After Launching
New entrepreneurs want to launch their small business as soon as possible and then think about structuring inventory after. However, this could lead to several costly mistakes along the way. Customers might purchase unavailable products, your team might not get the right inventory count, you might be spending too much, and you might be overstocking on slow-moving goods. Create an inventory management system before a launch to keep your operations flowing efficiently.
These are some inventory mistakes you need to avoid. Doing so allows you to maintain cash flow. If you need assistance with updating your books, you can review Robookkeeper’s outsourced accounting services. You can also send us an email via [email protected].