The Ultimate Guide to Small-Business Inventory Management

Inventory tracking and management isn’t as simple as entering a few item numbers in your inventory management software.

If you’re just starting an inventory system for your small business, it can feel overwhelming. What are all these terms and acronyms? Do you need inventory management software? And what is the best small-business inventory software, anyway?

We at Business.org are here to help. We’ve compiled a comprehensive guide to inventory management to give you a solid understanding of inventory, a few pointers on how to manage your products, and a jumping off point for finding the right inventory tracking solution for your business’s needs.

So let’s get started.

What's the best inventory management system for small businesses?

That’s the million-dollar question, isn’t it? While we like Cin7’s comprehensive features and (relatively) low prices, some businesses may prefer one of the other options available.

What is inventory for a business?

Inventory is any type of physical assets owned by your business. Raw materials used for building or assembling products? That’s inventory. Products you’ve purchased from a vendor that are still working their way through your supply chain? Inventory. Items used to maintain your business (like cleaning supplies or computers)? Still inventory. And an inventory management system can help you keep tabs on it all.

Most often when people refer to inventory, though, they mean products that you intend to sell. That’s why most inventory management software is geared toward retailers and wholesalers.

To get more handy definitions to help you contextualize all the inventory tracker options available to you, check out our glossary of must-know inventory management terms and acronyms:

What are the four types of inventory?

Technically, there are a lot more than four types of inventory. But pretty much all those types of inventory fall into four categories: raw materials, work-in-process items, finished goods, and maintenance, repair, and operations (MRO) goods.

Part of effective inventory management is understanding the types of inventory you’re working with. For instance, if you frequently deal with work-in-process items, you may need inventory management software that offers supply chain management. Or if you have a lot of MRO items (like computers, for example), you’ll need a solution with asset tracking included.

To find out more about the types of inventory and get help with managing specific inventory types, check out the following guides:

How do small businesses manage inventory?

Part of what makes inventory management so complex is the sheer number of theories on the best way to track, reorder, and quantify inventory.

We recommend getting started with our overview of what inventory management is (and how it can help your business).

From there, you can check out a couple of theories on how to prioritize the items you reorder:

Reordering

One of the big concerns inventory management tries to address is the best way to reorder products. You want to make sure your inventory levels stay high enough to meet customer demand, but you also don’t want to wind up with excess inventory that won’t sell (and the potentially high inventory costs associated with storing those items).

To find out how to balance your inventory needs with your cash flow, calculate your safety stock, and determine your reorder points for your products, check out our explanations of the most commonly used reordering methods:

Tracking

Businesses also need to determine how they plan to track their inventory levels. There are two main schools of thought on the matter: periodic inventory tracking and perpetual inventory tracking. This guide should help you decide which option works better for you:

Costing

Another main component of inventory management? Costing. Costing helps you balance the books and calculate important metrics like your profit margins and your cost of goods sold (see our inventory glossary to learn more about that). Here are a couple of resources to help you decide how you allocate costs:

How much does an inventory management system cost?

An inventory system can cost as much or as little as you deem appropriate. Some inventory management software can cost hundreds or even thousands of dollars per month, depending on your business’s needs. Some inventory software is completely free. Or you can always track your inventory manually—the only thing it’ll cost you is time (and maybe accuracy).

Long story short: it’s really up to the business owner to decide how much they want to spend on their inventory management.

Free options

Don’t want to commit to purchasing inventory management software? We totally get it. The good news is there are a couple of free inventory software options on the market.

However, to keep services free, these platforms usually have to strip down their offerings. Depending on the provider you choose, you may be limited to basic inventory tracking software or be capped at a certain number of sales or purchase orders.

Another option is to try tracking your inventory manually using pen and paper or a spreadsheet program like Excel. But because manual inventory tracking has a much higher risk of error, we only recommend this option if you don’t have much inventory to track. So if you’re a small business selling a limited number of items, carry on. If not, you may want to look into other software options.

Software options

For many businesses, the best inventory management tool is a software platform.

Most inventory control software options are cloud-based. This allows you to enjoy enhanced inventory visibility because the platform can update your inventory counts in real time anytime you receive a shipment or make a sale.

And while inventory management software tends to cost more than a manual tracking or a free platform, we think the cost savings and convenience more than makes up for the extra cost.

Check out our reviews for the most popular inventory management platforms to get all the details you need to choose the best option for your company:

Specialty software

Depending on your business, you may need an inventory management system that’s a little more robust than your run-of-the-mill inventory software. If you’re running a restaurant, for instance, you may need more advanced supply tracking than the options above can provide. Or if your company is particularly large, you may want to invest in an inventory management software that features enterprise resource planning (ERP) capabilities.

Be sure to keep these options in mind when deciding on the inventory management system you want to use.

What else do small businesses need to manage inventory?

Product codes

To make the most of your inventory management software or manual inventory tracking, you’ll need a way to identify and record your products. For that, you’ll need to decide on a product code system. Here are a couple of helpful guides to the most commonly used types of product codes:

Barcode scanning

Once you’ve got your product codes sorted out, you may want to invest in a barcode scanning system so you can automate as many of your inventory management tasks as possible. That way, you don’t have to manually read and enter barcodes into your inventory management system for every item in a new shipment.

Or you may decide to use an alternative form of product scanning, like RFID tags or QR codes. To help you decide, we’ve put together the following resources:

Best Inventory Management Software
Ordoro
Most Versatile
InFlow
Most budget pick
Upserve
Best for restaurants
Cin7
Best Overall
Tradegecko
Best for wholesale

Learn more about our top brands.

Integrated systems

Small-business inventory systems also tie into a couple of other business systems—namely your point-of-sale (POS) and accounting systems. This allows you to automatically log sales and purchases in your accounting software, track sales performance by employee, and more.

We suggest checking out Business.org’s top-recommended accounting and POS systems to see which options will work best with your inventory management software of choice:

To sum up

Devising the perfect inventory system for your small business can be confusing and time-consuming. Hopefully, though, we’ve provided enough resources, explanations, and recommendations to help you find the perfect way to track inventory and manage your supply chain without too many headaches.

Still have questions? Want our take on an inventory management software we haven’t reviewed yet? Shoot us a message and we’ll get on it ASAP.

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

Courtenay Stevens
Written by
Courtenay Stevens
Courtenay cut her teeth (and occasionally her tongue) on the world of business when she was eight years old, licking envelopes to help her dad mail calendars to his clients. Ever since, she has fostered a passion for entrepreneurship, which makes small business one of her favorite topics to write about. When Courtenay isn’t writing, she enjoys podcasting about pop culture and attempting to keep up with her hellspawn (aka children).
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