For many small businesses (especially retailers), inventory is a large portion of working capital investment and the company’s equity. Inventory losses (even minor ones) can have a great impact on both the value of the company and its profitability. It is important for small business owners to recognize what risks their inventory faces and develop ways to minimize losses.
Let’s look at four risks to small business inventory and what might be done to manage them.
Inventory shrinkage occurs when the product amounts on hand don’t measure up to the amount that an inventory sheet says should be there. This can occur from poor record keeping, inaccurate physical counts, or theft.
Here are tactics small businesses use to reduce shrinkage:
- Limit access to areas where inventory is stored.
- Install security cameras in warehouses or storage areas.
- Designate specific employees to receive all incoming inventory. Develop a system for receiving that requires two more people to verify goods received.
- Recheck purchase orders, invoices, shipping receipts and signed packing lists before they are filed.
- Install a point-of-sale system to track outgoing inventory.
- Have all invoices verified twice against order sheets. Choose appropriate shelving that will allow easy access for stocking, counting, rotating stock and cleaning. Organize the stock area to allow for clear observation and easy movement.
- Run a full inventory on a yearly basis, at a minimum. Account for discrepancies that are discovered.
Loss of Perishables
If you have a business that offers food service (such as a restaurant, market, hotel/motel, senior living facility, or even a golf course with a snack bar), spoilage can lead to big losses in a short time. Improper inventory management and handling of stock are the chief causes of these losses. Read more