Ruth Kelsey's method of tracking inventory for her gift basket business, Brittany's Balloons and Gifts, used to be informal--to say the least. "I was going by sight," recalls the Lithonia, Georgia, entrepreneur. "Basically, I stored everything in my den and garage, and every so often I would count it all."
As Kelsey's business grew and expanded to include party decorations, her inventory system became inadequate. "I would think I had 20 baskets left, then I'd go to fill several orders and find I had only 14," she says. "That would put me in a pinch, especially in my busy seasons." Kelsey is in the process of computerizing her inventory, which she expects to give her a more accurate method of tracking.
Inventory can make up 50 percent or more of a business's current assets, and poor inventory tracking is a major factor in business failure. "You want to make the best use of your capital," says Bruce Cohen, managing partner of the Albany, New York, office of accounting firm Coopers & Lybrand LLP.
"How can you manage your business unless you know how much inventory you have, what it cost and where it is? You're guessing," Cohen says. "I've seen a number of companies that guessed wrong over the years--and they're out of business."
Jan Norman is a freelance writer who specializes in small-business issues. She can be reached at firstname.lastname@example.org