How to manage small business inventory

When starting a small business, business owners often think about things like the storefront, branding, and displays. They think of smiling employees and happy customers. It’s not usually the image of the shelves and cupboards in the back stockroom that fill their heads.

But inventory is a critical component of your business. Sales are made and lost because of inventory control so it can’t be overlooked or left to sort itself out. Here are some tips for how to manage inventory for your small business.

Look back to look ahead

Forecasting is a vital activity when running a business, especially if you’re selling physical products. It’s imperative that you know how much of a product you can expect to sell and when.

If a customer comes to your store and you don’t have what they’re looking for, you’ll lose the sale. And if you have too much of something on hand that isn’t selling, you lose money right off the bat, both in what you paid for it and what it costs you to store it.

When you’re ordering your products, look back year over year to see what you sold and when. This will give you a better idea of how much you’ll need when ordering something new.

This can be tricky considering the last few years have been anything but normal as far as retail traffic goes. Do your best while keeping in mind what was going on at the same time last year, and what might be different about this year.

Reconcile discrepancies

If you find a variance when checking physical inventory against what your system says, be sure to research what went wrong. You could have a case of theft – internal or external. You may have an employee who doesn’t understand how to ring something up correctly. Or there may be a faulty process resulting in too much or too little of something.

Whatever the case, you must know what happened. It’s the only way to correct the problem and get more accurate numbers going forward.

Implement POS software

Modern point of sale systems are true game changers in the retail industry. What used to be manual work – marking down sales, going back and comparing that against what’s in the register, and so on – is now all done for you.

With a good POS system and staff who are well trained on how to use it, you really only need to audit your inventory when something is amiss. This saves an enormous amount of time and energy.

It also makes it easier to forecast, which helps you make good decisions when ordering more products. It’s a win all around and is a must for every business with inventory to manage.


As products arrive, they should also be the first ones sold (first in, first out). This keeps your inventory from spoiling, expiring, or becoming out-of-date. Electronic products may have depleted batteries if left on the shelf too long, resulting in a poor customer experience. Fabric products can gather dust or become unfashionable.

No matter what you’re selling, it’s a good practice to make sure you’re following the principle of first in, first out. It keeps everything fresh and you don’t run the risk of losing money on products becoming stale (literally or figuratively).

Consider hiring a stock controller

If you find that your inventory management tasks are taking over your whole business, consider outsourcing the job. A stock controller manages all the day to day inventory movements of a business. Their entire job is to make sure you have what you need when you need it.

Final thoughts

Owning and running a business with inventory can be fun and rewarding, but it’s not without challenges. Put in place some solid inventory controls and you’ll find yourself maximizing profits and pleasing customers.