How to Manage Inventory for Small Business

Inventory management for small business

You’ve purchased a domain named “” and signed a small space on lease for storing your products. Then you imported $54,000 books of all different genres and printed a unique brand logo on your packing cover for the books.

You’re almost all set to open a small online bookstore where a book lover can choose his/her favorite book and get it delivered to the doorstep.

But there’s something missing; You can’t only rely on your website in this highly competitive ecommerce environment, for generating decent numbers of sales (unless you are Amazon). Hence you plan to sell the books on multiple online marketplaces, but the question arises:

  • How would you keep track of which books got-off from their shelf and which didn’t? 
  • Which book to reorder and at what interval? 

It’s not a much difficult task to do inventory management of any goods (only if you follow some basic things). Here are the 3 points that we will discuss in this article to do efficient inventory management for small business.

1) Why should small businesses hold inventory?

2) Common mistakes small business make in Inventory management 

3) Why inventory management software for small business is must?

Let’s start!

Why should small businesses hold inventory?

You can’t always rely on the daily average frequency of product demand and supply. Need for inventory management software won’t exist if businesses only held the minimum amount of inventory they need to get through the day. 

The basic issue that small or growing businesses face is manpower. As a newbie in any industry, you can’t just have hundreds of employees at the starting phase. Hence these businesses purchase goods or products they sell in bulk so that the least or no amount of human hours are consumed in getting the inventory during high-demand. 

Most product-based growing businesses buy and hold more than the minimum amount because it shields them from unexpected situations of demand fluctuations. Understocking can lead to prolonged deliveries and crowds of troubled customers wielding pitchforks at your door. 

Moreover, if a business is selling products whose price keeps on changing frequently (eg: gold, platinum, silver, etc) – for those businesses buying the product when the market price is less, it helps them save more time and cost by purchasing it beforehand and stocking it. Hence in order to minimize the loss in business due to low-stock or stock out – small businesses hold inventory. 

However, holding any amount of inventory whether it’s small or big welcomes few many challenges. Here are a few mistakes and challenges that growing or small business faces while managing their inventory.

Mistakes small business make in Inventory management

mistakes in inventory management

Inventory is the backbone of your business. A little compromise managing it will have a great impact on profit margins. Though, inventory mistakes can’t be avoided if you’re running a small or enterprise business. But their impact can be minimized if you know it coming beforehand.

Here are some of the common mistakes small business owner makes:

1) Not checking the inventory Frequently

Inventory count or stock counts for growing businesses are important because they act as a backup to your day-to-day system, and can help you reveal flaws in your daily process or more significant issues like product damage or employee theft.

For example, you’re selling a product that has got an expiration date, then you may not even know that your product got damaged (expired) without getting off-the warehouses’ shelf if you don’t check your inventory regularly.

2) Mismanaging Stock Levels

If a growing business is following a manual way of managing their inventory, then chances of mismanagement in stocktake arises. 

Let say you stopped your warehouse operations for counting the stock. You counted each and every product and found in the excel spreadsheet that you’re running low on a few items. So you ordered those products for inventory replenishment. BUT! On the other day, there was product return in a large amount of that particular product which had low-inventory count. And you forgot to update that returned product count in excel – causing mismanagement in-stock level.

Mismanaging inventory levels such as overstocking and understocking will reduce growing business’s profitability over the long term. Therefore by automating the process of inventory management by using inventory management software – small businesses can overcome this issue of stock mismanagement.

3) Not Establishing KPIs

Measuring your performance is essential if you’re a small business owner. Because knowing and establishing key performance indicator for your organization will help you grow bigger and track operational aspects such as:

  • Receiving efficiency
  • Picking accuracy
  • Carrying cost of inventory
  • Inventory turnover
  • Rate of return
  • Backorder rate

Among other things, knowing your inventory’s KPI help in improving on-time deliveries, reduce operating costs, increase buyers’ satisfaction, or optimizing transport.

4) Failing to balance costs and timing

The first step for an efficient way to your inventory management for small businesses to organize your product data and information. Inventory management for small businesses requires huge man-power if its not automated by software. Which indirectly consumes a large amount of your time and money. 

Therefore in this era of digitization and technology, being a small product-based business – you need an automated inventory management software that automates the cumbersome manual process of managing inventory.

 5) Using Excel Inventory template

Spreadsheets are the easiest way to manage your inventory and getting related data like stock, sales, purchases, orders, suppliers, and basic level reports for free! But once your business starts growing and order starts coming from multiple sources, using excel inventory template becomes a tedious and time-consuming process to update the inventory data in the excel sheet. 

Managing product return in an excel spreadsheet is like a teacher giving you the punishment of writing the same thing 5-times! As you again have to perform the same task but in reverse process during product returns.

Why inventory management for small business is must?

why inventory management required

According to a case study– The inventory investment for a small business takes up a big portion of the total budget, yet inventory control is one of the most underestimated management areas in small firms. 

Based on the European Observatory for SMEs-Fifth Annual Report (ENSR, 2004), more than 99% of the total number of enterprises in all EU countries is small and medium-sized enterprises (SME). 

Many small businesses have an excessive amount of money tied up because of the accumulation of inventory sitting for a longer period or lack of ability to control the inventory efficiently.

Poor inventory management turns directly into strains on a company’s profitability and cash flow. Leveraging an inventory management software will not only optimize your inventory level, but also save large amount of time and human efforts.

Now let’s have a look at some of the perks of doing efficient inventory management for small business. With a good inventory system, growing businesses can:

  • Organize and Track inventory

Imagine you woke up and see all your reading novels, socks, t-shirts, bedsheets are laying on the all-round the floor messed up. The same thing can happen with your products (in the warehouse) if you overlook the inventory management part

By utilizing an inventory management software you can track product inventory in real-time throughout the supply chain. Also perceive how much stock to keep or you have on hand, how fast it is getting sold, and when the next shipment is due to arrive.

getapp data

  • Have every product information in One place

As a small business, you need to have a note of your inventory items. This helps you as a business owner to develop a strategy for enhancing sales. An inventory management system helps you keep track of inventory data with an automated way to track inventory movements. It is even found from the survey of GetApp that:

  • 39% of persons surveyed stated that due to the use of inventory management software they save 5 or more hours
  • 46% of respondents (retailers) decided when to reorder a particular product based on information from previous months.
  • On the other hand, the survey reported that 15% of SMBs opt for forecasting software

So having the right and accurate historical data is an important factor for a growing business.

  • Know when to replenish inventory

Imagine there are only last 14 units (product you sell) left in your inventory and you see a long queue of 20 buyers waiting outside your store to get the product. That’s the worst thing you’d want to experience as a seller because going out-of-stock is a big turn off for any consumer. And you don’t want your potential customers to move to your competitors.

There are inventory management tools that determine which selling products are doing well by applying the algorithms of Demand Forecasting techniques.  Hence, the tool will automatically notify you once the inventory level of that product reaches its “Reorder-Point” 

  • Minimize costs and prepare for the future

It is proven fact that with a good inventory management tool ensures that your products are always in stock. It cut down the supply chain cost, manages and chooses a better price from your supplier and eliminates the human workforce to manage inventory-related operations.

These automated inventory management softwares for small business also saves you a lot of your precious time – so that you can focus your mind on one single thing – “Business” 

  • Enhances relationship with Supplier

It is equally essential to keep a good and healthy relationship with your suppliers. As your business may fully or partially – at the end depend on the supplier. Also having a stable contact with suppliers helps you as a seller to reduce the product supplying cost, maintain good product quality and customer service.

“Poor partnership with your supplier is, more costly than staying in a transactional relationship with suppliers”

Therefore, inventory management system smoothens the process by building a bridge and sending product and end-customer information to your supplier. So that they don’t have to contact you each time when an order is received. 


Inventory management is as important as your sales. With a good and easy to use inventory management software you can:

  • Improve the accuracy of inventory orders. 
  • More organized warehouse.
  • Increases efficiency and productivity.
  • Save time and money.

Inventory management software for small businesses can not be neglected if you want to take your sales to the next level. 

Abhishek Biswas

Abhishek Biswas

A Listener, who speaks less and writes more. Will choose Pizza over anything. Doing non-technical pieces of stuff, with a degree in a technical field. Has stage fear thus prefers "Stealth-mode" conversation, also the Content Curator at Orderhive. . . . <<--- In the picture, I'm looking at my happy belly ;)

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