Managing Your Inventory

Simply put, inventory management refers to the act or process of keeping track of or managing the stock in your small business. It is a crucial aspect of running a profitable business because the inventory you keep is essentially potential profit in the form of material goods such as food, clothes, etc. Holding on to inventory should therefore be something to avoid as it will tie up your cash flow.

Ultimately, inventory management helps you do two things:

Save money: Inventory management can help you save money by ensuring you avoid spoilage (for items with expiration dates), avoid dead stock (stock that cannot be sold because it is outdated or irrelevant), and save on storage costs.

Improve cash flow: While inventory is potential cash, this money is inaccessible and unusable until the inventory is sold. It is therefore important to factor inventory into your cash flow management as it has an impact on both your sales and expenses. Accounting for your inventory will improve your cash flow management.

There are multiple inventory management systems available for small businesses, ranging from simple Excel spreadsheets (or Google sheets) to more elaborate inventory management software.

Learn to better manage the financials of your business by watching the International Finance Corporation's interactive video on this topic.