Organizing and tracking inventory is a time-consuming but integral part of any successful business. These small business inventory management tips will help you stay on top of this task.

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small business inventory management guide

Starting a small business is a brilliant accomplishment considering the whirlwind of details involved. There are so many things to do and methods to consider.

On top of running the business, many business owners need to keep track of a working inventory, whether that’s in the form of supplies or finished retail products.

If you aren’t organized and diligent, unorganized and untracked inventory can quickly turn the bookkeeping process into a nightmare

Maintaining an accurate inventory is vital to the success of a small business. However, if capital and space are limited, you’ll have to get creative with how you store and keep track of your inventory while also growing your business.

We’re exploring several smart ways to simplify small business inventory management. These tips and tools are specific to small businesses and can help alleviate some excess work, create a harmonious working environment, and make sure you’re able to organize inventory effectively.


1. Clear out old, unused inventory.

how to track inventory

Step one: make less work for yourself by getting rid of anything you don’t use. After investing money in your new business venture, you’re probably afraid to throw anything away in case you might need to use it again. Fair enough — every cent you spend needs to be in the service of your ultimate bottom line. Right?

Maybe not. If your workspace is cluttered with supplies you no longer use and products you no longer sell, it’s time to declutter. If there are office supplies like computers that you are depreciating on your taxes, make sure your accountant knows these items are no longer in service.

When you throw out or donate existing inventory, be sure to log an inventory adjustment with a valid reason like wastage. This extra step will take you time upfront, but it will cut down your time spent updating your inventory because you won’t need to account for items you’re not using.

Follow these two simple rules:

  • Ditch anything you haven’t used in six months or sold in a year.
  • Follow a strict one-in-one-out rule. New product doesn’t come in until the old product goes out.

2. Track best sellers first.

small business inventory management

Most small business owners will agree with the 80/20 rule. 80 percent of your sales will likely come from only 20 percent of your merchandise. That means you’ll have a few items that are big money-makers for you and your small business

When you’re taking a manual inventory, it’s wise to start with the items that experience the most change. Count your best sellers when you have fresh eyes and match the number on the shelf to the number on your software. Once you’re through with the top 20% of your inventory, the rest will be much faster to sort through.

While you’re at it, keep these best sellers in a prime storage location.

It’s essential to keep these best selling items close at hand and not tucked away in the back of your storage space.

To keep these items handy, you can set up and use a bookshelf in your office or your garage (if you work from home and your HOA allows it). This way, you can access those items quickly while also keeping your office area free of excess clutter. Keep stock in storage as well so you can replenish your office or home supply when it runs low.


3. Keep your inventory organized.

Small business inventory management systems don’t need to be complicated and expensive to be effective. Most importantly, it just needs to work for the particulars of your business. For instance, an antique shop that sells one-of-a-kind items will require a much more specialized management platform than a company that sells the same thing over and over.

First and foremost, make sure you have a system for how your store inventory.

  • Organize products by type and in the same place, so they’re easy to find.
  • If you store items in boxes, you can also make inventory management easier by placing digital photos of items on the boxes’ exteriors. Stickers with stock-keeping unit (SKU) numbers can also help you label and track your inventory.

4. Separate business and home with a virtual office.

Many small businesses run out of home offices and workspaces. However, as your business grows, it can be tempting to intermingle work and home life out of laziness or convenience. This mistake can be costly come tax time.

Let’s use the example of Martha, who runs a soap making company out of her house. She uses her business phone to make personal calls, and she buys supplies for her business and home on the same order. Sometimes she takes soap from her inventory and uses it in her home without tracking it. This commingling of funds and inventory can be costly if she files as an LLC or a corporation.

The more you can do to separate your small business inventory and operations from home life, the better. But what does this mean from an office perspective?

If you don’t have the budget for an office, you can make your home office much more efficient by setting up a virtual office.

For a monthly fee, you can set up a separate business phone number, a live receptionist answering phone calls, a corporate business address for all your mailing and packages, personalized voice mailbox, and even a fax number that will convert to email.

The more you can separate home from business, the less likely you’ll be accused of commingling personal and business funds and resources.

Remember: If you decide to use a virtual office, make sure that business information is identical to the information you have on your corporate documents.


5. Find a helpful inventory management app.

Not every small business has the funds to set up an expensive inventory management software system. Still, apps are available to make it possible to digitally manage your stock without spending big bucks.

Here are some popular inventory management apps:

Prices range from free to $100 per month, depending on what features you want and how hands-off you want to be. As your business grows and your needs change, you can change your inventory management technology as well.


6. Move business inventory off-site.

Hear from other entrepreneurs who store inventory in storage units

You can’t efficiently get work done when your office space is cluttered with excess inventory. Moving those items out of the office and into self-storage units can be the easiest and often most cost-effective solution. You might be thinking, why not just use my garage? Not so fast. Many homeowners’ associations prohibit residents from using their garages to store inventory.

Even if there are no restrictions, most people like to use their garages to house their vehicles. Also, many self-storage units are climate controlled, adding further benefit to housing inventory in a self-storage space. Most storage spaces cost significantly less than commercial warehouse space.

As your business grows, you can authorize other people to retrieve items from storage without giving them your house key, and you can always move to a larger unit if needed.


7. Hire outside help as your business grows.

how to manage small business inventory

If you are selling thousands of items at a time and going through a vast rotating inventory, sometimes it makes sense to hire a third party to help keep things in order. It’s essential that tracking inventory doesn’t become your full-time job. This way, you can devote time to other integral components of growing your business.

Business owners grow weary because they’re trying to manage sales, update social media platforms, file quarterly tax paperwork, manage inventory, and keep the accounts and ledgers balanced. When your business hits an unanticipated growth stage, it’s too much for one person to handle.

Make a list of the items you want to keep doing yourself (or what you realistically have time to do). Then determine the type of support staff you need to do the rest. Depending on the cash flow you have, you could hire part-time or full-time employees, or you could look for independent contractors.

Warehouse Anywhere, a subsidiary company of Life Storage, is an inventory management company that uses tracking technology to turn storage units into mini-distribution centers in any city you need. Learn more about how this company can help you manage your small business inventory effectively here.


We hope this article inspired you to revamp your small business inventory management system. Sometimes all it takes is a little planning and organization to get started. It’s helpful to put these habits into place when a business begins, but no time is too late to improve upon a system that is no longer working for your business.

If your business lacks storage space, or if you are using valuable square footage for storage, you could be losing money. Read the infographic below to see how much you could save by using self storage for your business instead of dealing with clutter and disorganization.

small business inventory management infographic

This post originally published on 10/26/15 and was revised on 11/27/19 with new information.

About the Author

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Lauren Thomann

Lauren Thomann is a moving and storage expert. She attended the University at Buffalo and has worked in the storage industry for over five years. Here on the Life Storage blog, you can find Lauren covering everything from finding a home, settling into a new home and all the stages in between.

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