This post is brought to you in a paid partnership with QuickBooks
Small businesses manage inventory efficiently by maintaining enough inventory to meet demand while avoiding overstocking. They do this by using simple rules and regular reports to track what is in stock, what is being sold, and when reorders need to be made.
Software like QuickBooks can help small businesses manage inventory more accurately and with less manual effort by recording purchases and sales, tracking inventory, and identifying low or slow moving items.
Key to take away
- Efficient inventory management avoids both stockouts and overstocks, which helps secure cash flow
- A reliable system should be used to store item lists, movements and basic reordering rules
- QuickBooks can act as this system and help small businesses manage their inventory efficiently
What is Inventory Management for Small Businesses?
Efficient inventory management means meeting customer demand with the least waste of money, time and space. In practice, this means closely tracking inventory, understanding which items are moving faster or slower than others, and setting simple rules for when to reorder and how much inventory to keep.
The goal is to prevent stockouts and overstocks while keeping the process manageable for a small team.
How to manage inventory efficiently
- Decide which items need to be tracked: First, focus on products that make up the majority of your sales or are difficult to replace. Errors related to these items have the greatest impact on your cash and customer satisfaction.
- Create a clear inventory list with basic item details: Give each item a unique name or code, a unit of measurement, and a simple category so you can group related items when checking inventory and sales. In QuickBooks, you can find this information in the products and services list.
- Choose a reliable system for tracking quantities and values: You can use a spreadsheet, a dedicated inventory management system, or accounting software with inventory management features. Some QuickBooks plans (such as Online Plus and Online Advanced) allow you to enable inventory tracking (in Settings) and set items as inventory, non-inventory, or services so you can track what you buy, sell, and have on hand.
- Always record purchases and sales in the same system: Efficient inventory management is based on the unique and consistent recording of inventory movements. QuickBooks automatically updates quantities and accounting entries as you enter invoices, invoices, and sales receipts for inventory items, so you don’t need separate inventory tables. Additionally, the quantity on the order is updated for inventory ordered but not yet received (on Plus and Advanced plans).
- Set easy reorder points to guide your purchasing decisions: A reorder point is the inventory level at which it is most efficient to place a new order, considering lead time and inventory security. QuickBooks (on Plus/Advanced plans) can store reorder points and flag items that are low or out of stock so you can review them, prioritize them, and create orders before they run out.
- Use reports to identify patterns and adjust if necessary: Regularly check which items are selling quickly or slowly and how much cash you have on hand. QuickBooks inventory and sales reports let you view quantities on hand, items to be reordered, and inventory value so you can adjust order sizes or eliminate underperforming items.
- Review processes and tools as your business grows: As order volume or sales channels increase, evaluate whether your current mix of spreadsheets, software and/or inventory apps still works for your business. For example, scaling businesses could start simple and then connect QuickBooks with more specialized inventory tools as their needs become more complex.
Basic principles of efficient inventory management for small businesses
| principle | Example |
|---|---|
| Keep an accurate track of what you have | Maintain a single item list and track available quantities in one main system |
| Reorder at the right time, not too early or too late | Set reorder points based on lead time and demand. Use a low stock or alert list |
| Avoid copying data manually | Record purchases and sales once (use a standard form for both if you use QuickBooks). |
| Identify elements that promote or hinder cash flow | Check fast- and slow-moving item reports and inventory value before reordering |
This table shows the principles of efficient inventory management with examples of how to apply them.
QuickBooks Use Case: Applying Efficient Inventory Management Principles
A small home goods store wants to avoid empty shelves and boxes piling up in the warehouse. The owner moves key products from an Excel spreadsheet into QuickBooks Online, which he already uses for small business accounting.
They import their product list from the spreadsheet, select inventory item types, and record purchases and sales using standard forms. Quantities are now updated automatically, low inventory alerts inform owners when to reorder best-sellers, and inventory reports indicate slow orders that should be reduced or discontinued.
The owner spends less time manually counting inventory, which means more time serving customers and planning the future of the business.
Checklist: Setting up inventory management in QuickBooks
- Choose a QuickBooks Online plan with inventory features
- Enable inventory or inventory tracking in Settings
- Import products and services from Excel or CSV with Import Data.
- Import customers and suppliers so they are ready for purchasing and sales entries
- Designate each item as inventory, non-inventory, or service depending on its intended use
- Record purchases and receipts for inventory items to maintain accurate quantities on hand
- Record all sales of inventory items using invoices or purchase receipts
- Set reorder points for essential items and regularly check low inventory alerts
- Connect e-commerce apps (e.g. Shopify Connector) to sync orders and related data
- Complete regular inventory and sales reports to support ordering and pricing decisions
Best practices and pitfalls
- Prioritize high-impact items: Follow and review the bestsellers first before worrying about sidelines.
- Don’t just rely on memory: Use preset reorder points, regular reports or automatic notifications instead of guessing when to buy
- Avoid double entries: Choose an inventory management system and ensure all purchases and sales go through it.
- Review reports regularly, not just at the end of the year: Avoid stock-outs, overstocks and obsolete items.
- Update your process as you grow: As volume and channels grow, consider switching from a spreadsheet to a system like QuickBooks and consider connecting a dedicated inventory app as you scale.
Frequently asked questions about inventory management
What does efficient inventory management mean for small businesses?
Efficient inventory management means maintaining enough inventory to meet demand without tying up too much cash or storage space. For small businesses, this typically includes tracking quantities, establishing basic reorder points, checking sales patterns, and using inventory management software so updates are accurate and not dependent on a person’s memory.
When should small businesses switch from spreadsheets to inventory management software?
If you have a small product range, one or two sales channels and a low order volume, a simple spreadsheet may be sufficient as long as you keep it up to date. As product lines, orders, or staff grow, inventory management software or a dedicated inventory app can reduce errors and manual work.
How can QuickBooks help manage inventory efficiently?
QuickBooks can help by tracking on-hand quantities, items that are low due to reorder levels, and the value of inventory as part of your accounts if you choose a plan that includes inventory features. It links inventory changes to purchasing and sales records so you have a unified view.
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