The Painful Small-Business Inventory Lessons I've Learned

Introduction

Welcome back to the channel, guys. Today, we’re diving into a topic that many business owners dread: inventory management. If you're struggling with it, you're not alone. Inventory is a critical aspect that can either make or break your business. In this article, we'll outline six compelling reasons why maintaining an accurate inventory is crucial for your success.

1. Good Accurate Financial Reporting

For a long time, we didn’t have a system to track our inventory. We just kept accumulating stuff, ordering extra supplies here and there. Eventually, the clutter grew, and we realized we had no idea how much inventory we actually had.

We started counting all our stock and tracking it in our computer system. This inventory sitting on your shelves impacts your financial reports whether you realize it or not. If you plan to use or sell it later, it needs to be inventoried. Remember, your "bone yard" of seemingly free stuff is actually tied-up capital.

2. Ensuring Sufficient Stock

Has this ever happened to you? You need 57 units to complete a job, but you only find four on the shelf? Knowing how much of each item you have at any moment helps avoid such situations. Ensuring sufficient stock is the second reason to maintain accurate inventory.

3. Avoiding Overstock

Why do I still have eight units of six and a half foot posts that I haven’t sold in two years? Probably because I didn’t track my inventory levels accurately. Your inventory system should help you understand how much you've sold in the past so that you don't over-order. This avoids clogging your shelves with items that don’t move quickly.

4. Reducing Picking Errors

Imagine grabbing a box thinking it's a three-inch nail, but it turns out to be an inch and three-quarters. Barcoding everything and tracking it properly ensures that you pick the correct items every time. This reduces errors and ensures jobs are done right the first time.

5. Accurate Job Costing

Accurate job costing is crucial. If you think you did well on a job but used more material than planned due to waste or damage, you may be losing money without realizing it. An inventory system helps you track exactly what goes to and comes back from the job site, highlighting any discrepancies.

6. Better Cash Management

When you look around, what do you see? Shelves filled with inventory, and all of it is money that could be put to better use elsewhere. Keeping an accurate inventory helps with cash flow management, ensuring you're not tying up more capital than necessary.

Types of Items to Inventory

What should you inventory? Here, we inventory almost everything, from tools on trucks to bandsaw blades, marking paint, and even fuel. If it's an item we buy in bulk and use over time, it’s in our inventory system.

Conclusion

Managing inventory might seem daunting, but it’s essential for accurate financial reporting, avoiding shortages, preventing overstock, reducing picking errors, job costing, and cash management. In our next article, we’ll delve into choosing the right software and hardware for your inventory management needs.

Until next time, I'm Mark with Successful Contractor. Get serious about inventory management, and you’ll see the benefits in your business.

Keywords

• Inventory management
• Accurate financial reporting
• Stock levels
• Overstock
• Picking errors
• Job costing
• Cash management

FAQs

Q: Why is accurate financial reporting important in inventory management? A: Accurate financial reporting ensures that the value of your inventory is properly reflected in your financial statements, helping you make informed business decisions.

Q: How can I avoid overstocking my inventory? A: An inventory management system can help you track sales history and inventory levels, guiding you on how much to order to avoid overstocking.

Q: What should be included in a good inventory management system? A: A good inventory management system should include tracking sales history, current stock levels, and have features to reduce picking errors, manage job costing, and support cash flow management.

Q: What types of items should I inventory in my business? A: You should inventory any item you buy in bulk and use over a longer period. This includes tools, supplies, and consumables like fuel.

Q: How does job costing help in inventory management? A: Job costing helps track the actual usage of materials on a job, highlighting any discrepancies and ensuring that you account for any waste or unexpected usage.