The typical small business owner is also the marketing director, advertising manager, sales manager, HR director, accountant, and janitor. If your business happens to buy and sell goods, then you also need to be the inventory manager. Inventory management can be somewhat of an enigma. Not only does it affect your bottom line, it can also have a great impact on your customer relationships. Learning to manage your inventory correctly will allow you to maintain sufficient stock without impacting your financials or your customer relationships. We’ve pulled together three tips to get you started on proper inventory management.
[tabs tab1=”Tip 1″ tab2=”Tip 2″ tab3=”Tip 3″]
[tab id=1]Determine what inventory you need to keep. If you’re in manufacturing, you will want to ensure a steady supply of raw and intermediate materials. If you sell finished goods, you will need to maintain adequate supplies based on sales forecasts. Determining how much inventory you need is dependent upon storage space, cost of goods, shelf life, delivery time, sales rate, and other factors. Remember, inventory on the shelves is money you can’t quickly access![/tab]
[tab id=2]Monitor your trends. You need to determine what sells and what stays on the shelf. Always be on the lookout for more economical raw materials that don’t require you to sacrifice quality. You will want to determine your inventory turn – the time it takes to deplete your inventory and then restock. Track your inventory so that you maintain records on each item. You should record each item’s description, supplier, value, and storage location. If you sell finished goods, ensure that you’re using a Point Of Sale (POS) system. You’ll want to integrate this with your inventory data for reconcilliation.[/tab]
[tab id=3]Organize your storage areas and implement the appropriate inventory management practice. The most common are FIFO (First In First Out) and LIFO (Last In First Out). Which ever method you choose, it must clearly reflect your income. IRS Publication 538 (http://www.irs.gov/publications/p538/ar02.html) contains great information and also has references so you can delve deeper. Properly secure your inventory. Make sure that your inventory is covered by your business insurance.[/tab]
Do you have any best practices you’d like to share? If so, let us know by posting a comment.