Post-Holiday Assessment: How to Manage Inventory for Small Business

Between supply-chain disruptions and adapting to the pandemic, many small businesses experienced a holiday season unlike any other. Moving forward, many of these same issues will continue and will be impacted by rising costs.

Navigate these challenges and find new opportunities with this step-by-step guide to inventory for small business. Get inspired to think creatively about how to build customer engagement and find strategic advantages to grow your business.

How to accurately assess the inventory for your small business

No matter what challenges are ahead, preparation will always give you a competitive advantage.

With the holiday season in your rear-view, it’s time to assess your business’s inventory and plan for the rest of the year. By doing so, you’ll be ready to take on opportunities and overcome unpredictable events or disruptions that could occur.

Step 1: Take stock of your business’s current inventory

If you find that you were short on inventory for 2021 holiday sales:

You were in good company. Along with staffing challenges, inventory shortages and shipping delays were major issues small businesses faced during the 2021 holiday season.

• For customers whose holiday gifts didn’t make it on time due to inventory shortages. It’s important that you keep communication open, empathetic, and positive with your customer. Offer appropriate remedies that show you understand and care about the situation. You’ll want to resolve it in a way that makes them feel good about doing business with you. Try sending a special note or small gift to their giftees to let them know that something special is still on the way.
  
• If your shortages were due to delayed fulfillment or delayed shipping issues. One of your goals for 2022 should be to review the fulfillment and shipping practices with the company that manages this for your business (even if your distribution system is simply you in your home office):
  
  • Find out if they offer partial fulfilment or alternative shipping arrangements to enhance efficiency and what those options mean for your business. Will you be responsible for covering additional shipping costs? Also, how do these considerations weigh against keeping your customers happy (and, hopefully, loyal)?
    
  • Are there inventory-system upgrades that you or they can make? If your inventory management system is an Excel spreadsheet that relies on you to update it regularly, it may be time to invest in something more reliable. Many e-commerce sites (like Shopify, Etsy, and Amazon) also include inventory management systems and can easily generate reports.

To maintain your customers’ trust, you’ll have to be especially attentive with your cancellation or return policies now, too.

If you have excess inventory, it’s important to determine why:

• If you sold less than planned, do you know why? The reasons may be immediately apparent. For example, you may have overordered to compensate for delayed deliveries from vendors. 
  
  In any case, you should also assess whether your storage, inventory management and order-fulfillment systems are suitable and cost-effective. If not, you may need to find additional space or ways to unload excess inventory that’s tying up cash.
  
  Try to survey your customers to find out why they may have bought less than you had thought they would. This can be a terrific opportunity for business development! It shows that you’re proactively looking for ways to reach them and provide what they need or want. You can do this easily and cost-effectively, too, using email and social media.

Step 2: Find creative ways to turn your challenges into revenue streams now

Whether you had too little or too much inventory, it’s not too late to turn that challenge into a new opportunity.

Inventory shortages: Inventory shortages can be turned into customer-engagement opportunities and generate revenue for your business. Here are a few ideas:

• Streamline your offerings to focus on best-sellers or higher profit margin products and ensure to get word out when they come into stock.
  
• Encourage and incentivize pre-orders for upcoming gift-heavy holidays (like Valentine’s Day) and events.

Excess inventory: When your challenge is excess inventory, you need to find creative ways to turn it into cash without drastic markdowns. Depending on the kinds of merchandise you stock, you can:

• Bundle an overstocked item with something new for Valentine’s Day, spring sales or other special offers. The goal is to offer something that keeps your customer connected to you for upcoming gift purchases, while reducing overstock on items that need to go.
  
• Offer a modest-but-meaningful discount to incentivize purchases of larger quantities or early purchases (such as stocking up on seasonal items for spring or summer now). Your overstock situation could be the answer to another business’s shortages.

Step 3: Assume that challenges will continue through 2022 and plan for your next holiday season now

Every business that keeps inventory performs a balancing act of hitting the exact amount of stock needed for every item. It’s a goal that’s rarely met, but helps to keep inventory for small business manageable. Here’s what you can do now to plan ahead:

• Review your inventory-management and ordering systems now to assess whether keeping more inventory on hand is reasonable.
  
• With costs continuing to rise, stock up on your best-selling items that won’t go out of style or expire now while demand is lower.
  
• Adjust your pricing to reflect the true cost of delivering your products while making a profit. One way you could do this is by reviewing your products by SKU-based or group-based product margins and include fulfillment and other overhead costs. This may be the time to raise prices or bundle offerings to sustain your business’s profitability.
  
• Keep track of key performance metrics: Your business performance metrics probably changed significantly over the last two years. Be sure to adjust your metrics to reflect your business’s new normal.

Step 4: Get your finances in order

Ensure that you have an accurate budget and that you know your business’s true working capital needs. Your cost of doing business may have increased or will go up. Make sure that you have enough cash on hand to meet your inventory and operating needs. And if you need more working capital:

• Be aware that interest rates are expected to rise in 2022, which may impact how much you qualify for and what your monthly payments will be.
  
• Know that lenders will take a closer look at your business’s finances and your personal credit history. They want to see that your business is in recovery mode, meaning that it’s financially stable or returning to profitability.
  
• Have an online bookkeeping system in place (such as QuickBooks, Xero or Bench). This way you can quickly and easily provide accurate, up-to-date financial statements (including your profit-and-loss statement and a balance sheet).
  
• Have your taxes done early and accurately. The last two years have been challenging for bookkeepers and accountants trying to keep up with pandemic-relief programs. Help your accountant by providing information that’s organized. Accurate tax returns make the business loan application and approval processes much easier for you and your lender, too.

Pursuit can help

If your business needs a financial boost in 2022, take a look at more than 15 loan options available through Pursuit. Our loans are designed to meet a huge range of needs and are developed to help business owners who may not meet all the criteria for conventional business loans. Contact us today and let us know how we can help you.