If you are a retailer or manufacturer of physical products, performing inventory is critical to the success of your business. While you may have software in place to track items, nothing takes the place of a physical count. The software doesn’t consider waste of perishable items or theft until you physically make the corrections. Accurate inventory tracking is essential to maintaining good books and calculating the cost of goods sold for your income statement. Unless you take a stock of your inventory you may not be able to understand or be aware that your profit margins are dropping.
Inventory counting also helps you to stay ahead of the power curve on reordering items before you run out of stock. When you know how many of a certain item you have in stock, you will simplify your ordering process and it can often be incorporated into your sales system so that your inventory levels are up-to-date all the time. By maintaining sufficient inventory levels you will not only improve you margins, but also customer satisfaction.
Finally, by tracking your inventory you can reduce your overhead and improve your cash flow. If you have goods sitting around for extended periods of time it may be time to consider marking them down. These goods are not only taking up valuable storage space, but tying up your cash that may be better spent on other items. If you mark it down or donate it, you may be able to get a tax credit out of it as well. Although, it isn’t optimal it will prevent you from tying up your capital in inventory and moving it to either better inventory or other items in the business which are more effective.
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