Why Taking Inventory is Essential in Business

Why Taking Inventory is Essential in Business

Taking inventory can be an arduous task, yet it’s one that most businesses wouldn’t dream of skipping. Here is a look at why taking inventory is so useful.

The main question that can be answered by taking inventory is how much of each item a business has on hand. This might include finished products as well as those that are at various stages of completion. In small businesses, everything might get counted, with the business even possibly closing on a specific date so the task can be carried out. Bigger companies and those that deal with lots of small parts often find it works better to use spot checks or samples to estimate the inventory.

Many businesses will use the first-in, first-out method, which assumes the items that are put into inventory first will be sold first. Another approach, last-in, first-out, operates on the premise that the items that are in inventory last will be sold first. Other businesses use average cost, which is simply an average of the cost of all of the items that are sold during a certain period of time.

Another useful piece of information that taking inventory can yield is inventory turnover, or the number of times per year that items are sold and replaced. Higher turnover means higher sales and a more efficient business.

Getting the Bigger Picture

In addition, taking inventory can identify cases where inventory might be disappearing. There are a few reasons it could be vanishing. It might not have been recorded properly, it could have been damaged or unusable, or it may have become obsolete. This is particularly problematic in the case of electronics and tech devices.

Perhaps the biggest reason for taking inventory is to help businesses ensure they keep the right number of items on hand, as having too much or too little are equally damaging to the bottom line. With so much useful information waiting to be tapped, it’s easy to see why taking inventory is well worth the effort.

This blog post was based off of an article by the Balance Small Business. Read the full article here.