Every business needs to generate revenue, and that means selling profitable products. Your operational success relies on balancing stock levels, profit margins and operational costs as part of managing your inventory. Good stock management will increase business efficiency, create a healthy cash flow and give you the capital you need to grow. Read on for our comprehensive advice on how to effectively manage your inventory.
Before optimizing your inventory, it’s vital to get the basics of stock management right.
The days of using a clipboard and pen to track what you’re selling and order the right amounts are well behind us. There’s plenty of good inventory management software you can use to track products that are coming into and going out of your business. Popular inventory management software includes Stitch Labs, Square Retail, Syspro, Zoho Inventory and VendHQ. Read through the features of each and choose a system that’s easy to use and will grow with your business.
Your point of sale (POS) system will track what is coming into and going out of your business. Your POS must be integrated with inventory management, so you always have an accurate record of exactly what’s available for sale.
Look at how quickly you’re selling stock, and set reordering levels to a reasonable amount. Most inventory systems can reorder from suppliers automatically when you fall below a certain amount. This will ensure you always have enough product to meet your baseline sales.
Track your sales and inventory on a regular basis so you keep a clear understanding of how your products are selling. This will help you spot trends and popular items early and adjust reorder amounts appropriately.
Inventory shrinkage is inevitable in most businesses. Whether it’s through administrative oversight, faulty products, theft or something else, the number of physical items you have and the records in your stock system will get out of sync. Inventory levels in your system must match up with the stock you’re actually holding, so count and audit items on a regular basis. You should take stock once a year for an overall snapshot of your inventory, sales and business success.
Once you have the basics in place, you need to optimize how you order and manage stock.
Historic sales, trends and seasonal variations will all impact how much product you need to hold in stock. Dig into the details of your sales and understand how demand changes for specific items. Forecast what future needs are likely to be and build this into your reordering.
Advertising and other promotions will impact demand for specific products. Make sure you have a good understanding of likely future demand due to promotions and special offers, and build this into your forecast and stock levels.
Make sure your suppliers are fully integrated with your inventory and ordering systems so they can receive and process product requests quickly and effectively. Account for processing, distribution and other lead times from suppliers so you’ll always have enough products in stock. Look into backup and emergency suppliers in case your main supplier ever has problems sourcing a product. Finally, make sure you understand and take advantage of the return policy for unsold goods.
Holding the right number of products is only part of inventory management. Make sure you have enough free cash to maximize your profit margins through your stock.
You need to balance price, turnover, revenue and profit. Make sure you have a complete understanding of all your product and business costs so you can build a healthy profit margin. You can only achieve healthy, scalable business growth by balancing price, profit and turnover.
A big advantage of free cash is that you can reinvest in your business and take advantage of supplier promotions. Many suppliers and wholesalers will offer discounts based on the time of year, quantity or value ordered, etc. Make sure you have enough cash in the bank to take advantage of these discounts, as they can enhance your profit margin.
If you have regular sales and invoices, you can use invoice factoring to get an advance on your unpaid invoices. Services like Payability, Bluevine and Fundbox can release the value locked up in your invoices (in return for a fee).
Merchant cash advances (MCAs) can be another good way to get quick cash to buy inventory. An MCA provider agrees to purchase a business’ future receivables at a discounted rate, essentially “advancing” future business revenue. The business pays off the MCA with a daily payment withdrawn until the full amount that was agreed upon has been received by the funder. This can be a useful option for organizations with suboptimal credit scores or short business histories. If you need an MCA, we can help.
Accounts payable is how you track, understand and pay any outstanding invoices with suppliers. A strong accounts payable system will let you stay on top of what you owe and ensure you pay your bills on time.
Inventory management doesn’t have to be complicated — just follow these tips:
Bring these areas together, and you’ll have a robust inventory management system that will strengthen and support your business as you grow.
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