How do I track inventory for my small business?
Start with a system that matches your current scale. If you sell 20 different products through a single sales channel, a well-organized spreadsheet tracking quantities, costs, and reorder points might be enough. Once you’re managing hundreds of SKUs or selling across multiple platforms, you need software that syncs with your accounting system.
QuickBooks Online handles basic inventory tracking if you enable it. You set up products with quantities on hand, costs, and sales prices. When you record a sale, the system reduces inventory and calculates cost of goods sold automatically. This works for straightforward retail or wholesale businesses where you buy finished products and resell them.
For businesses that manufacture, assemble, or have more complex needs, specialized software like DEAR, Cin7, or Fishbowl integrates with QuickBooks and provides more robust tracking. E-commerce sellers using Shopify or Amazon often need apps that sync inventory across all sales channels to avoid overselling.
Physical counts matter regardless of what software you use. Your system shows what should be there. A physical count shows what’s actually there. Discrepancies happen from theft, damage, miscounts, or data entry errors. Most businesses should do a full count at least annually and spot-check high-value or fast-moving items monthly.
Pick a costing method and stick with it. FIFO assumes you sell your oldest inventory first. Weighted average assigns the same cost to all units. The IRS cares that you’re consistent year to year, and a small business accountant in San Gabriel Valley can help you choose based on your business type and tax implications.
The bookkeeping side matters as much as the operational side. If your inventory count says you have $50,000 in stock but your books show $35,000, something is wrong and your financial statements are off. Inventory accounting feeds directly into your cost of goods sold calculation, which affects your gross margin and ultimately your taxes.
Common mistakes include not updating the system when you receive inventory, forgetting to adjust for damaged or returned goods, and only thinking about inventory at tax time. Build habits around recording inventory movements as they happen, not reconstructing them later from memory.
If tracking feels overwhelming, start with your top sellers. Track those accurately first, then add complexity as you get comfortable with the process.
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