How to: Manage Inventory

If you don't know what's in stock, there could be trouble in store.

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

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This article was originally published in the August 1998 print edition of Entrepreneur with the headline: How to: Manage Inventory.

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