4 Ways that Proper Inventory Management Procedure Can Increase Your Bottom Line

Proper inventory management procedure can reduce overhead and increase your bottom line. This is why it is important for you to have an effective inventory management system for your business. With it in place, you will know what is coming into your store,  what is going out of your store, and what you need to do to increase your profit margins.


  1. A proper system for receiving inventory will keep you from paying for extra products/paying for products you never received.


The reality is, suppliers make mistakes. Whether you end up paying for extra items or get stuck paying for products you never actually received, you are going to lose money.

That is why it is important to go over each invoice with the delivery courier before he or she leaves. Mark any inconsistencies on the suppliers copy of the invoice and be sure to contact the supplier and sort out the issues before you pay them. Catalogue your inventory before it is put in your stockroom to ensure an accurate initial count.


With a system like this in place, you will know exactly how much inventory is coming into your store and prevent any overcharging for extra items or items you didn’t receive, decreasing your costs and increasing your bottom line.


  1. Setting up a consistent system for counting inventory will help you determine which products are moving and which are not thus streamlining and increasing sales.


Without sales, a business has no chance for survival. That is why increasing sales is almost always near the top of a business owners to-do list. If you do not have a consistent system for counting inventory, then you really have no accurate idea of what is selling and what is not. You could have shelves full of unproductive product.

This is why you need to count your inventory regularly. With a regular inventory counting system in place, you will know exactly which products are selling and which are not. Once you know what is selling, you can stock more of those items and order less of the items that do not sell as well, streamlining your business and increasing sales.

  1. Having an accurate inventory count will alert you to which items are disappearing. This helps you to crackdown on shoplifting and employee theft.


Shoplifting and Employee Theft account for nearly 70% of retail shrink in the U.S, costing American businesses an estimated 27 billion in 2013. Odds are, your business is losing money due to shoplifting and employee theft. But, without knowing which products are being taken, it is hard to address the issue.

However, if you are diligently performing your inventory counts, you will know exactly which products are disappearing/not being rung up. Armed with this information, you will be able to crackdown much more effectively.

Let’s say you run an electronics store and discover you are missing a bunch of USB drives when you do inventory. This enables you to take action. You can move the USB section into a more public area of the store. Or, you can instruct a specific employee to hang out around that section to discourage shoplifters.

Either way, identifying the problem allows you to address it in a much more effective way, decreasing shrinkage and increasing your bottom line.


  1. Proper inventory management procedure helps you to estimate future inventory needs much more accurately, reducing waste and increasing profit.


Every grocer, coffee shop owner, or restaurateur knows all about inventory waste. Lettuce wilts, creamer sours, and bread goes stale. Every item that goes bad increases your costs and decreases your bottom line. Without a proper inventory count, you will be ordering blindly and risk significant product loss.


Inventory waste will always be a reality for certain small business. However, proper inventory management can significantly reduce waste, thereby increasing your bottom line.

For example, it is the holiday rush and you know people are going to want eggnog, which is a seasonal item that goes bad quickly. If you have kept accurate inventory records, you can go back, see how much eggnog you sold last year, and order slightly above that number to ensure you have enough but not too much.

Not only does this protect you from overestimating and losing a bunch of money or underestimating and disappointing all your eggnog-seeking customers, it also reduces waste and increases profit.


About the Author

Jason Rueger is a staff writer for Fit Small Business, specializing in writing "how to" guides for retail merchants and product reviews. In addition to writing, Jason runs Rueger Pottery.  The company specializes in creating handmade, functional pottery for sale through local fairs and Etsy.