Many small-business owners adjust their inventories by the quick eyeballing of warehouse goods. Although such a method may suffice in a state-fair jelly-bean guessing game, it doesn’t meet official approval by the Internal Revenue Service.
Inventory inaccuracy can add to a company’s operational costs, as well as introduce accounting errors at the end of the year.
Underpay your taxes and your business can face hefty penalties, but overestimate your inventory and your business may lose revenue from overpaying the government, warns Strategos Inc.1 Insufficient stock leads to delays and unhappy customers. Over-ordering stock leads to a costly surplus.
To create a comprehensive record of inventory, consider using software and take the following characteristics into account.
1. Cost. The cost of inventory software ranges from free to somewhere in the thousands, depending on the features. Are you ready to invest some serious cash in this area?
If your company is short on funds, you may prefer to put your money into raw materials and settle for a free version of inventory software to start.
2. Key inventory needs of your company. Start by asking your chief executives exactly why the company needs inventory software.
- Financial reasons? Perhaps your startup is beginning to grow, so you’re on the hunt for new investors or lenders. If you’re courting equity investors, you must present an accurate description of your business’s value.
In the case of debt financing, lenders need to know your inventory count to determine exactly how much in tangible assets and collateral you can provide.
In either case, your inventory software will most likely be used to calculate number, cost, and price of merchandise. Check to see whether these features are easy to use on any software you consider. Also, check to see whether there is a reporting function that allows you to calculate merchandise totals and cost-profit reports.
- Operational reasons? Perhaps your online store is constantly selling nonexistent stock. Your business will need inventory software to sync with the online shopping-cart platform of your website. However, not all systems work together. Call the software support team and inquire about the software’s digital coordination capabilities. And, make sure there are no additional or hidden costs for doing so.
- Sales point? If you operate a wholesale business with a retail aspect to it, you may need a sales-point feature to accompany your inventory software—i.e., a way to create barcodes, scan SKU numbers, print invoices, and charge credit cards. Some inventory software is geared more toward commercial use than others.
When it comes to inter-technology communication, it’s important to note that not all inventory software will sync with QuickBooks or other accounting software. If auditing concerns are crucial in your decision-making process for purchasing an inventory program, consider this feature first to narrow your search.
3. Customer service and help-desk resources. If this is your company’s first time using inventory software, you may need extra help. Some software companies provide in-person support for a fee. Others have free online-chat support.
4. Ease of use. Finally, technology is only as good as its user. So measure your employees’ comfort levels when using inventory software. Sign up for 30-day trials to test the interface and ease of use for varying software products.
Don’t let salesmen talk you into purchasing inventory software that is too expensive, too confusing, or too limited for your small-business needs.
With the extent of competition among inventory software providers, the vendor should be offering you a steal of a deal. Be sure to negotiate. And, leave happy.
For more information, visit:
1. “Inventory Record Accuracy and Cycle Counting: The Lean Side of Cycle Counting”