How to Avoid Costly Inventory Problems
Inventory is the lifeblood of your business. It is the largest asset on your balance sheet and your company's biggest revenue-generator.
It goes without saying that poorly managed inventory can do serious damage to your bottom line. Businesses without clear strategies for streamlining the in and out flow of goods will have trouble meeting their customer's demands and will see mismanaged stock corrode their profits.
Follow these tips to ensure your business doesn't fall prey to common – and costly – inventory problems.
Implement a system for accurate stock tracking
Whether you have a modest stockroom or a large warehouse, it's important to know precisely when products are coming in or shipping out, so you're able to re-stock efficiently.
Factor in lead time when calculating your basic stock, so you don't run out of a product before new supplies can be delivered – disappointing your customers and missing out on revenue opportunities.
Implement an automated inventory management system to track fill rate and inventory returns for all products, and get a better handle on exactly how much stock you have at any given time.
Avoid excess inventory
Excess inventory is a financial drain on your business in more ways than one. It costs money in extra overhead, increases insurance costs, and reduces your liquidity – not to mention the space taken up by extra merchandise could be better allocated to more profitable products.
Here are a few ways efficient inventory management can help avoid the problem of dead stock:
Don't purchase large orders of stock simply because they're being offered at a discount. It might take much longer than anticipated to sell the products and turn a profit – in the meantime, your order gathers dust in your storage room.
Calculate and stick to a realistic safety margin so you only buy what you are reasonably sure you can sell. A good system for tracking sales and profits – and checking it often – is essential to making better buying decisions.
Liquidate your overstock by selling products at discounted prices. You also might consider returning excess inventory to your vendor (it may be worth it even if you have to pay a re-stocking fee).
Prioritize your inventory needs
You can avoid inventory mismanagement by putting better systems in place to prioritize your inventory needs. You should always know which products have the highest turnover ratios and ensure those items are always on hand.
One approach is to divide your inventory into three groups (A,B, and C) based on their dollar impact on your business . You'll get a clear sense of which items to purchase more of and avoid needlessly tying up cash stocking up on the non-essentials.
Final tips for better inventory control
If you’re looking into switching to or upgrading your accounting software, look into a solution that includes inventory pricing and availability features. And be sure to invest in training to ensure your staff knows how to use inventory tools – and has a firm handle on overall inventory management practices.
With enhanced customer data at your fingertips, your business will earn a reputation for personalized service. You’ll be able to respond quickly when a customer calls with a question about a product or an order. And you’ll be able to suggest substitutions and offer valuable add-ons based on their buying preferences, so upselling becomes a snap.
How will you use accounting software to grow your small business?
Savvy business owners take the first step toward better profitability when they stop thinking of accounting software as simply a financial management solution and start thinking of it as a comprehensive tool for business growth.
You may be surprised at the many ways accounting software can help you better serve your customers or improve your sales strategies when you look at its true potential. Now that you have a handful of ideas for making better use of your accounting software, what will you do differently to enhance customer care, improve your profits and continue to grow your business?