Statistics show that more than half of all small business start-ups fail within the first five years. 11% of these failures are due to poor inventory management and lack of knowledge with the product or service being delivered. By year 10 over 70% of all small businesses have failed. Yet for any business, no matter how old, staying ahead of the curve and being competitive against big-box competitors consistently remains a challenge. Staying on top of inventory levels is an easy way to match the competitiveness of big-box retailers.
Why is it extremely important for small business to stay on top of their inventory management? In essence inventory management is daily tracking of inventory assets within the company, how much you have and where it is. A company with too much inventory can run into cash flow issues and become cash-strapped equaling liquidity problems and not being able to pay the bills, because the money is tied up in inventory. On the other hand too little inventory can limit company growth or inventory in the wrong products can cause flat or declining sales. Understanding what inventory items are selling the best in those that are selling the worst helps keep the company healthy. Inventory management also helps guide future purchasing, avoid tying up too much capital in inventory and discovering damage or theft issues as they occur. A proper inventory management system, such as a POS, also provides an accurate reflection of cost of goods sold (COGS). COGS ensures the health and vitality of the business by ensuring proper profit margins and full cost details not just the purchase price. Correct COGS procedures also provide benefits for cost savings during tax season and for bookkeeping and accounting efficiencies.
What is POS?
POS stands for point of sale. A POS software system integrates inventory management directly with the point at which products are sold allowing for accurate inventory levels to be calculated and maintained. If your business sells products online, over-the-counter or in a retail setting, a POS is necessary. The “till” in a POS system is generally a computer that records the transaction and removes the inventory from stock. To further drive the point home about a proper inventory tracking system, The National Retail Federation estimates retailers lose $224 billion due to excess inventory and $45 billion due to inventory shortages, annually. Understanding on a daily, weekly or annual basis which products are selling and which are sitting on the shelves is one of the most important business management tasks.
A Great POS
POS systems can range from a small investment of $1500 up to a fully integrated large POS system that can cost over $10,000. Making the right choice by choosing the right POS not only will affect your bottom line from the initial purchase price but should provide continual long-term savings. The most important aspects for POS are its inventory modules and features. The system should allow for alerts that will let you know when inventory is running low and easily add items when they arrive. Find a system that balances great functionality with ease of use. The system should also be able to account for backorders from suppliers, generate purchase orders per supplier and integrate with your current technology easily. A simple POS provider should also be able to provide expert installation advice and services.
The next time your retail business, hardware store or pharmacy customer comments “you really should keep this in stock” consider purchasing in integrating a POS system to provide great customer service and a competitive edge against big-box retailers.