Running a small business means watching every dollar. One place where money often gets tied up? Your inventory.
Too much stock eats cash and takes up space. Too little means missed sales. Let’s fix that.
The Real Cost of Excess Inventory
When products sit on shelves, they cost you more than you think:
- Your cash is frozen instead of working for you
- You pay for extra storage space
- Products can expire, get damaged, or go out of style
- You might end up selling at a discount just to move items
For a small business, these costs can be the difference between profit and loss.
5 Simple Steps to Better Inventory Management
1. Know Your Numbers
Start by tracking these basic metrics:
- Inventory turnover rate: How many times you sell through your inventory in a year
- Days of inventory: How long items sit before selling
- Carrying costs: What it costs to store inventory
Even a simple spreadsheet works for this. Just track what comes in and what goes out.
2. Use the 80/20 Rule
About 80% of your profits likely come from 20% of your products. Figure out which items these are.
Focus your attention on keeping the right stock levels for these top performers. You can be less strict with the rest.
3. Set Min/Max Levels
For each product, set:
- Minimum level: When to reorder
- Maximum level: The most you’ll keep on hand
This prevents both stockouts and overstock.
A good starting point: Look at how much you sell during your supplier’s lead time, then add a small safety buffer.
4. Get Rid of Dead Stock
Be honest about items that aren’t selling. They’re costing you money every day.
Options to deal with dead stock:
- Bundle with popular items
- Run a sale
- Donate for a tax write-off
- Return to supplier if possible
5. Consider Just-in-Time Ordering
Can your suppliers deliver quickly? If so, order smaller amounts more often.
This works especially well for:
- Expensive items
- Products with unpredictable demand
- Seasonal merchandise
Tools That Help Small Businesses
You don’t need fancy systems. Start with:
- Basic inventory software: Many accounting programs include inventory features
- Barcode scanners: Even simple ones speed up counting
- Cycle counting: Count a small portion of inventory each week instead of all at once
Real Talk from a Small Business Owner
“I used to order six months of inventory at once to get the discount. Then I realized I was paying more in storage and lost interest on my money than I saved on bulk pricing. Now I order monthly and my cash flow is so much better.”
Next Steps
This week:
- Count what you have
- Identify your slowest-moving items
- Set reorder points for your top 10 products
Smart inventory management isn’t about complex systems. It’s about asking: “Do I really need this much stock?” Most times, the answer is no.
Your business will thank you.