Many types of small business, from restaurants to manufacturers to retail stores, have stocks of supplies or products that must be maintained efficiently in order to optimize cash flow, prevent waste or shortages, and protect profit margins. So how do you know if your inventory management system is truly serving your needs?

Ask yourself these questions. The answers will reveal your system’s strengths as well as areas for improvement.

What type of inventory do you carry?

You probably have one or more of these three main types:

  • Raw materials. These are the supplies which go into making your final product, such as foodstuffs if you’re a restaurant or fabric if you’re a clothing manufacturer.
  • Work in progress. These items are in the making but not yet finished and ready to sell. Your pizza dough is mixed and portioned, but not yet baked; or your garments are cut out but not yet sewn together.
  • Finished products. This stock is ready to sell and ship to customers, either wholesale or retail.

The type(s) of inventory you carry will dictate your storage requirements, tracking practices and reordering protocols.

How well can you predict future inventory needs?

Do you know how much stock you should have on hand at any given time? If not, you risk having either too little and losing customers, or too much and hindering your cash flow.

To improve the accuracy of your reorders, base them on concrete historical data rather than general experience. Your accounting software should be able to easily generate reports including:

  • Best selling items (which will need more stock than the others)
  • Seasonal fluctuations in sales volume
  • Trends in sales of specific items
  • Revenue and profit on each item
  • Differences between physical store and online sales

This information is not only essential to inventory management, it can also help you make the right decisions about your product assortments and keep your business growing strong.