5 Key inventory management tips for startups and small business

Category: How-tos Startups

At first glance, inventory management may appear to be one of the more straightforward aspects of running a small business. Provided that teams keep accurate records of all sales, inventory managers just need to make sure they have enough stock to meet demand, right?

In reality, a successful inventory management operation must account for a range of external factors that may affect stock availability in the long-term. Staff must consider carrying costs, supply chain issues, seasonal demand and a variety of related factors to keep businesses running smoothly without wasting valuable resources or risking financial loss from low sales.

Thankfully, modern startups and small businesses can leverage a number of intelligent processes and smart technologies to streamline inventory management and improve operational efficiency. From actionable data analysis principles to time-saving automation applications, here are 5 key inventory management tips for startups and small businesses.

1. Select a suitable inventory management method

Effective inventory management begins with a carefully considered organizational structure. Teams must be able to accurately track the right materials and anticipate customer demand if they’re to find an ideal balance between healthy stock levels and minimized carrying costs.

The most appropriate inventory management method for any particular business will depend on a few determining factors related to the types of products the organization sells, including:

  • Quantity
  • Turnover rate
  • Item value
  • Perishability
  • Carrying costs

With these factors in mind, startups and small businesses should consider the pros and cons of choosing to implement one of the trusted inventory management methods listed below:

  • LIFO – A last-in first-out structure assumes the most recently purchased items are to be consumed or sold first, LIFO is typically used when the cost of acquiring inventory is increasing, as such a method ensures items are sold for the highest possible profit
  • FIFO – A first-in first-out structure assumes inventory will be expensed in the order it’s been acquired, this method is best utilized to manage perishable items and materials
  • Perpetual – Perpetual management calculates the cost of goods sold in real-time and will instantly update inventory levels as transactions occur to provide live sales data
  • Periodic – Periodic management is a manual form of inventory monitoring for smaller operations in which stock levels will be updated in response to physical stock counts 

2. Utilize smart inventory management software 

With a suitable management method selected, teams can apply this structure to all relevant processes and POS systems by utilizing smart inventory management software. These tools, coupled with secure VPN connections, are used to digitize inventory data to make tracking and analyzing stock levels much simpler.

By developing a modern cloud-based system, teams can monitor live stock levels, record new stock and material deliveries, and automatically reorder key items when stock levels dip below a specific threshold, all via a web-based platform accessible from any smart device. Safe VPNs provide an additional layer of security to ensure that sensitive inventory data is protected from unauthorized access and potential cyber threats.

Smart inventory management software is highly customizable and easily scalable, allowing startups to adjust their systems as they grow, with these programs eliminating the need for manual stock counts and providing detailed data analysis to continually improve operations.

3. Identify and address low-turn stock 

Low-turn stock is an industry term used to describe any merchandise that hasn’t sold for a protracted period, usually between 6–12 months. This definition can vary if a business sells seasonal goods, though the general idea is to identify any items that should be discontinued.

Teams utilizing inventory management software, one of the valuable business tools for startups, can set alerts to automatically identify items that haven’t sold for a predetermined period of time, allowing staff to immediately cancel any future reorders. Remaining low-turn stock can be sold as part of a promotion to offset some projected losses, but the key to minimizing risk is to identify these items as soon as possible.

4. Perform frequent detailed stock audits 

Whilst choosing to operate smart inventory management software will make monitoring live stock levels much simpler, it’s also wise to perform scheduled manual stock audits to make sure that no accidental errors or oversights occur related to the way systems are configured.

At a minimum, it’s advised that startups and small businesses perform a manual stock audit once every 12 months, with teams physically counting and spot-checking stored inventory to ensure everything is accurately recorded. Annual audits can help staff to recalibrate software systems if discrepancies are found, or clarify that automated systems are working correctly.

5. Stick to data-driven decisions 

Once an effective inventory management method and software system has been running for an extended period, business leaders may feel they’re well-positioned to anticipate changing needs and demands. However, it’s important to ensure that operational decisions are only ever made if there is reliable and accurate data available to support organizational changes.

Implementing an inventory management system configured to record real-time stock and sales data will help teams to achieve this, with data analysis tools allowing staff to predict future demand based on historic data and vendor performance. By ensuring that decisions are made with support from accurate data, losses, errors and risks can be reliably mitigated.


By taking the time to develop a bespoke inventory management system, startups and small businesses can avoid waste and maximize efficiency with support from accurate information. 

Teams must choose a methodology that suits their business, develop software systems that help to streamline operations, and remember to only make decisions based on provable data. But remember, as useful as modern tools are, manual stock audits will help to mitigate risks.

Santiago Henostroza

Marketing Manager at Startupxplore, with experience in journalism, media, advertising and marketing agencies. Passionate about metrics, ways of communicating and innovation.

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