Select Page

Every small business needs to manage inventory to keep their business running smoothly. Business owners need to decide how to order inventory, how to store it, and how to account for it. There are many choices regarding inventory management for small business.

These choices include:

Basic Inventory Management:

Basic Inventory Management: A basic system uses inventory management Excel spreadsheets.

Regular Inventory Management:

Regular Inventory Management: When the inventory management is not too complex, it is possible to use inventory management software free versions that are offered on a trial basis and then if the inventory management is more complex convert to a paid version.

Flexible Inventory Management:

Flexible Inventory Management: Flexible and robust inventory management is now available as a paid subscription for an inventory management app and a software as a service (SaaS) solution, with the programming constantly updated and the data stored in the cloud. This guide explores the various inventory management techniques, explains what to consider when choosing inventory management software and the benefits of following the best practices of inventory management for small business.

What is inventory management system cost?

The cost of inventory management ranges from free or low-cost for simple solutions, to modest cost for downloadable options or monthly subscription services, to significant investments in technology and equipment for fully-integrated systems.

Investment in inventory management software and integrated systems is worth it if there are a large number of inventory items and if the inventory system integrates with a point-of-sale system or another accounting system, such as supply chain management.

What is inventory management system choice?

The choices of inventory management for small business include simple solutions, free solutions, paid solutions, and subscriptions for SaaS solutions. The best practices for a particular company depend on the types and amount of inventory managed and the complexities of the purchasing and sales systems.

Simple Inventory Management Excel Spreadsheets

Simple inventory management for small business is possible by keeping records using inventory management Excel spreadsheets. This is a minimal system used to keep records of inventory that is slightly better than keeping the inventory records on paper.

Templates of Excel spreadsheets for inventory management are available. Some include the macro-calculation formulas that make using them easier. The entries on these spreadsheets record when inventory is bought and when items from inventory are sold. This allows a business to track the remaining level of inventory for reordering purposes. It also creates an accounting record of the inventory that can be checked by taking a physical count.

What is inventory management system setup? No matter the type of inventory system used, many of the same things are needed for the setup.

The steps to manage inventory using Excel spreadsheets are:

Create the Basic Template Structure

  1. Create the Basic Template Structure The basic structure starts with setting up the inventory list. This list includes the product names, descriptions, and the assigned product numbers for each inventory item. If there is existing inventory, the stock is counted and then these figures are used on the inventory spreadsheet(s). Additional useful information to include is the cost of each inventory item, the amount remaining that triggers a reorder and if the item is discontinued. The inventory information can be used for gross revenue calculations by including the number of inventory items that are sold and their sales price.

Update Inventory

  1. Update Inventory After the basic template is set up and current inventory levels are entered, it is important to update inventory as new sales are made. These updates should be done frequently and immediately upon sales or at the end of a set period, such as at the end of a day. One of the problems with managing inventory by using Excel spreadsheets is that human error is likely to occur. Moreover, if the inventory spreadsheets are not updated frequently the information is not current, which is misleading.

Consolidate and Summarize Data

  1. Consolidate and Summarize Data At the end of an accounting period, it is helpful to consolidate and summarize the data. Then, the summary figures are used going forward. This process gives business owners a chance to review the activity for the period.

Audit the Records and Count the Inventory

  1. Audit the Records and Count the Inventory Entries should be checked for accuracy and mistakes fixed. On regular intervals, a physical count of the remaining inventory should be made to see if the accounting summaries are accurate when compared to the amounts of inventory items in stock.

Even if businesses start out very small, most of them rapidly outgrow simple inventory processes and need more than inventory management Excel spreadsheets to manage their business effectively.

Inventory Management Software Free

The inventory management software free category includes software that is free to use and software that offers a free trial followed by a paid version for those who continue to use it.

Inventory management software free to use or free to try is offered as downloadable software or as an inventory management app that can be used while online or with a mobile device such as a smartphone.

This solution is superior to trying to use Excel spreadsheets and making all inventory entries by hand because it allows for integration with other helpful technological solutions.

Inventory Management App as SaaS

A very effective solution for inventory management is to use an inventory management application that is offered as SaaS.

The advantages of using a SaaS solution include:

Lower Cost:

Lower Cost: SaaS solutions have a lower upfront cost.

Quick Start:

Quick Start: It is easy to start working with a SaaS solution.


Upgrades: An SaaS inventory solution has automatic upgrades that do not require any user intervention.


Accessible: SaaS solutions are available from anywhere that has an Internet connection. This means that they can be accessed by any authorized users that have a mobile device.


Scalability: It is easier to scale inventory management when using a SaaS solution.


Integration: The mobility and accessibility of a SaaS inventory solution allows easier integration with point-of-sale systems and supply chain management systems. Mobile devices, such as a smartphone, are able to scan a barcode or a QR code in order to use the information to update the inventory records.

What is inventory management system support?

When using Excel spreadsheets for inventory management, users are virtually on their own. There are free Excel templates for inventory management and general information is available on the Internet. However, there is no dedicated support staff to help, such as what is available when using purchased software for inventory management or a SaaS solution. For those using spreadsheets, who need help with inventory management, they must rely on accountants and others that know how to make spreadsheets.

With paid software, there is usually a support staff that can help with questions about inventory management software. The popularity of some SaaS solutions makes it somewhat easier to find support for inventory management, including hiring people who know the software to make the data entries for updating the inventory.

Best Practices for Inventory Management

Effective inventory management increases efficiency, reduces costs, improves cash flow, and has a positive impact on the bottom line. It allows a business owner to know inventory levels in real time. This helps to forecast demand to prevent inventory shortages and for better production scheduling.

Supply chain management that works with just-in-time inventory methods is considered one of the best practices. The overriding goal of these systems is to have enough of the needed items in hand at the time when they are needed.

These advanced inventory management systems are able to get materials from the supply chain to use for efficient manufacturing processes in order to fill sales channels with a steady flow of product. Effective supply chain management depends on having accurate inventory levels in order to prevent the accumulation of excessive stock and any unnecessary waste of raw materials.

The best inventory management systems are accessible by authorized users using mobile devices. This allows for an easy analysis of inventory levels in real time. Integration with point-of-sale systems allows immediate inventory updates that are made based on sales. Pre-set, low inventory levels automatically trigger reordering. This optimizes the use of warehouse space as well as more efficiently making use of employee labor.

When a barcode scanner system is included in the design that interfaces with the inventory management system, this allows increased ease-of-use in updating the inventory records. If the inventory management system can be expanded, such as the scalability offered by SaaS solutions, it is easier to support multiple locations as the business grows.

Here are some advanced best practices and an explanation of the benefits of using them for inventory management:


  • Forecasting Businesses do much better when the forecasting of projected sales is more accurate. Historical factors are considered along with other important things such as economic trends, market dynamics, growth rates, advertising campaigns, discounts, and special promotions.

Usage Pattern

  • Usage Pattern Most businesses benefit from using a FIFO method for inventory usages. FIFO stands for “first-in, first-out.” This means that the older items, which are held in inventory, are used before the newer ones. The FIFO method is especially important for businesses working with perishable items.


Break-Even Businesses that monitor sales in order to know when a break-even level has occurred can maximize profits. Break-even occurs when the fixed costs have been covered by the sales. After the break-even amount is reached, the only things needed to be covered by any additional sales are the variable costs. Break-even is the mathematical concept behind the annual retail-sales day called “Black Friday.” Black Friday refers to the calendar day of the year when the fixed costs for major retail stores have been covered. In other words, by Black Friday retailers are in the “black.” This means they are profitable for the year. On Black Friday, items can be put on sale for a much lower cost that is just slightly above the variable costs. After break-even, there is no need for any of these additional sales revenues to be used to cover fixed overhead. Every dollar that an item is sold for above its variable cost goes directly to the bottom line.

Inventory Tracking

Inventory Tracking Real-time inventory reports are useful for management when making critical decisions. It is important to know about fast-selling items because this demonstrates high demand. It is also important to know about the most profitable of the selling items when deciding about advertising campaigns. Sales volumes may be increased for items that do not sell as well by offering promotions or discounts on them. An effective inventory management system that is instantly updated and has the most current information helps authorized users make decisions to do a better job to create profits.

Inventory Audit

Inventory Audit Inventory counts that occur on a frequent and regular basis are important. Any discrepancies between the accounting levels shown for the inventory and the actual inventory held in the warehouse(s) needs to be written off as a loss. Counting inventory should include quality control inspections. Damaged goods need to be written off. Under the standards of Generally Accepted Accounting Practices (GAAP), any inventory that has lost value needs to have the accounting records reflect the loss as well. Inventory management systems that integrate with a barcode scanning system are easier to use. The inventory can be counted by scanning the barcodes to find out what is missing, which is not accounted for as already sold.

Inventory Turn

Inventory Turn In general, low-turn inventory items are those that have not sold within one year from the time they entered inventory. There is a calculation that should be made to compare the holding costs of keeping unsold inventory in the warehouse space. Perhaps the items are outdated, older models, or discontinued. Excessive, low-turn stock takes up space and ties up capital unnecessarily. Many companies choose to liquidate (sell for less than the manufacturing costs) the inventory that does not sell in order to make room for newer and better-selling items.

A-B-C Categories

A-B-C Categories An interesting technique for inventory management is to group items into three broad categories based on their percentage of the total inventory count and their value, which is the annual demand of an item times its cost. The three categories are: A) These items are considered to be “big ticket.” They are the smallest percentage of the total inventory count and yet have the highest value. B) These items have an average value and make up a larger portion of the inventory count than the A items. C) These items have a low value and make up the largest percentage of the total inventory count.Lokad reports that management is able to gain insights by tracking items based on these three categories. Items in the A category typically represent only 15% of the total inventory count; however, they create 70% of the value for a company. These items are the most valuable. They need to have more secure storage. They should be restocked frequently and inventory levels should never run out. Items in the B category typically represent up to 25% of the total inventory count and 20% of the value for a company. Management should carefully observe any items in this category if they move towards the category A, which is more valuable, or towards category C, which is less valuable for a company. Items in the C category typically represent up to 60% of the total inventory count, however; only 5% to 10% of the value for a company. These items should be restocked on an as-needed basis. Inventory levels for each of these C category items may be very low, even just one unit. Being out of stock for an individual item in this category is not significant. Management needs to pay closer attention to the carrying-cost of these lower value items because this can waste a company’s financial resources. It is good if the inventory management system can show the items separated into these three categories. By taking this A-B-C approach to inventory management, companies improve efficiency and generate more profits.


An inventory management system is critically important for all businesses. The best practices for inventory management include using a solution that integrates with point-of-sale systems and supply chain management systems. Point-of-sale systems, supply chain management systems, and inventory systems all work more effectively when they use barcode labels and barcode scanning information.

The best inventory management systems give a company management real-time inventory information that helps them make better decisions. Most inventory systems are more effective when they allow secure, remote access by authorized users. This is one reason, besides automatic upgrades and low initial costs, that cloud-based inventory management system offered as SaaS solutions are increasing in popularity.

There are many options to consider. The appropriate choice for an inventory management app depends on the company size, the number of inventory items, and the value of the total inventory under management. Some small companies start with a simple system and then progress to a more complex solution as they grow.

Contact us to learn more about our inventory management and productivity B2B software solutions.


Inventory Management 101: How to Manage Small Business Inventory

Excel inventory management techniques – 7 basic tips & free template

Advantages and disadvantages of Software as a Service (SaaS)

ABC analysis (Inventory)