Inventory is any tangible material sold to customers. It is the basis of many businesses, large and small. The goal is to see it efficiently transform from an expense into a profit. The ideal inventory plan is to purchase the minimum amount of stock needed to meet your sales demand. While this sounds very simple, as a small business owner, I have learned this is one of the trickiest aspects of running a business.
The first stepping stone in determining the amount of inventory to carry at any one time is sales forecasting, which is difficult in the first year of business because you don't have any historical data for comparison. One thing I found helpful during my initial year was forming a good relationship with my supplier.
My supplier was able to project general sales trends by state and month based on ordering data from all the companies receiving shipments throughout the years. In the following years of your business, you can compare sales on a daily basis from previous years because you have that baseline to go by.
There are also other factors you have to consider from year to year that may create variances. In my shaved ice business, weather was a contributing factor that had a tremendous day-to-day impact on my business. So, there are other factors that come into play when predicting sales from year to year.
Keeping Track of Inventory
Keeping track of inventory is crucial in planning the timing of restocking your supplies. In small businesses, inventory is relatively easy to keep track of even without using the latest in computer software. I used the simple method of counting and evaluating the quantity of my shaved ice flavors every couple of days. I had sales records of every order a customer placed and from those determined the most popular flavors and doubled up on those flavors only when reordering. As far as the ice was concerned, during the first year I was able to establish how many shaved ice servings we could generally get from one block of ice and then anticipated the need to reorder based on that simple calculation.
Ordering in Bulk
There is a fine line between having too much inventory and not having enough. So, ordering in bulk can really tip the scales to the "having too much" side. There are times, however, when this type of ordering can prove to be more efficient. You can often save on shipping costs by ordering in bulk, which also means you avoid running out of supplies and dealing with expediting charges that can really add up. Some companies offer quantity discounts when placing an order, which is a nice little savings bonus as well.
When you get right down to it, inventory is money. It is not profitable to have too much money tied up in inventory, and it's poor customer service to not have a requested product in stock. Learning to maintain that delicate balance is only derived from years of practice and experience.
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