A tidy stockroom, freed-up cash: seven steps to managing inventory in a small business
For many small businesses, inventory is one of the biggest places money sits. An extension article from Virginia Tech's Department of Industrial Engineering and Operations Research on inventory control in small companies notes that finished goods and raw materials often represent the greatest dollar investment these companies make, and that managing them well may spell the difference between success and failure.
The trouble cuts both ways. Run out, and orders get cancelled and customers go to a competitor; buy too much, and money that could pay rent, wages or advertising gathers dust on a shelf. Amazon's inventory guide for small sellers lists signs that it's time to get organized: you oversold a product, you ran out and missed sales, you spend too much time wondering what's in stock, or you reordered something you already had. If any of those sound familiar, the seven steps below work for a shop, a workshop, a restaurant, a guesthouse or an online store.
1. Pick one tracking method
A notebook, a spreadsheet or a simple app can all work. Amazon's guide stresses not switching between methods and not tracking some products but not others. Choose one method, record every movement in it, and keep it as simple as possible. A sophisticated system you don't use is worse than a plain notebook you fill in every day.
2. Set a par level for each product
A par level is the most you ideally want of a product in storage. Ask yourself the highest quantity of it you're comfortable holding. Each time you reorder, top stock back up to that level and no further. That one number stops stock from piling up unchecked.
3. Calculate your reorder point instead of guessing
A reorder point is the stock level that tells you to place a new order. Amazon's guide suggests this formula: average daily sales times the number of days your supplier takes to deliver, plus buffer stock. In its example, a product sells about 5 units a day, delivery takes 4 days, and 10 extra units are kept as a buffer, so the reorder point is 5 × 4 + 10 = 30 units. When stock drops to 30, order.
The Virginia Tech article adds an important point about sizing buffer stock: guaranteeing you never run out would take excessive stock. Instead, decide what service level is good enough, for example that about 90 out of 100 orders are filled from stock on hand.
4. Group products into A, B and C
Not every product matters equally to your business. Sort your products by the revenue each one brings in. Amazon's guide says a fraction of products, roughly a fifth, usually generates most of the revenue; these are your A items and get tighter reorder points, frequent counts and the closest supplier relationships. B items get standard attention, and C items, a large share of the list but a small share of revenue, can do with lighter reviews. The split puts your limited time where it has the most effect.
5. Sell older stock first
First in, first out means selling each batch in the order it arrived. It matters most for food, cosmetics and seasonal goods that lose value as they sit, but it helps any business avoid unsellable stock. Amazon's guide suggests arranging storage so older stock sits at the front and labeling each batch with its received date.
6. Count regularly
However carefully you record, errors creep in. The Virginia Tech article notes that occasional posting errors mean periodic physical counts are needed to correct the records to what is really on the shelf. Amazon's guide likewise suggests setting a fixed time each day or week to count stock and compare it with your records, so you catch discrepancies before they become a problem.
7. Think about bulk deals, seasons and every sales channel
A bulk discount is tempting, but Amazon's guide warns that if a product sells slower than expected you end up with dead stock; it's safer to order smaller quantities until you have reliable sales data. Sales also vary from month to month, so adjust par levels and reorder points before the busy season arrives. And if you sell both in person and online from the same stock, track all channels together so you don't sell the last unit twice.
An exercise for this week
Pick the five products that bring in the most revenue. For each, write down three numbers: average daily sales, how many days an order takes to arrive, and how much buffer stock you want. Use them to work out each product's reorder point, and note it on the shelf or in your records.
Sources
Inventory management for small businesses, Sell on Amazon blog, July 22, 2026
Simple manual inventory control for small companies, Virginia Tech Extension Division, Department of Industrial Engineering and Operations Research
A tidy stockroom means peace of mind and cash that works for you instead of sitting on a shelf. Have a productive Saturday.
