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Your guide to inventory

Everything you need to know inventory to help your business run smoothly and profitably.

What is inventory?

Put simply, inventory – or stock – are the goods that your business buys in order to resell to your customers, and it’s the reason you’re in business. It can be raw materials that can be carved into a product, or it can be sold as is. For something to be inventory, you must have bought it, and it must be for sale to your customers.

business owner inventory illustration
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How inventory works?

In business terms, inventory management means the right stock, at the right levels, in the right place, at the right time, and at the right cost as well as price. When done effectively, businesses reduce the costs of carrying excess inventory while maximizing sales. Good inventory management can help you track your inventory in real time to streamline this process. By effectively managing your inventory you can have the right products in the right quantity on hand and avoid products being out of stock and funds being tied up in excess stock.

What is inventory accounting?

If your small business purchases, holds and sells inventory of any description, you need to come to terms with how inventory works and how to manage, report and account for it through sound inventory accounting. Read the article to learn more.

illustration for the inventory accounting article

Inventory FAQs

What is the difference between inventory and stock?

Stock items are the goods you sell to customers. Inventory includes the products you sell, as well as the materials and equipment needed to make them. Although the definition of stock is concise, there are four main types of inventory: raw materials, work in progress, MRO supplies and finished goods.

Stock includes finished products, parts, materials—whatever you sell to customers. The more stock—or products—you sell, the more revenue your business generates.

Inventory includes finished products and all the assets a business owns or uses to complete production.

What are the benefits of good inventory management?

Accurate inventory management is key to running a successful product business. Tracking stock regularly can help avoid stock errors and other problems. The following benefits of strong inventory management include; better inventory accuracy, reduced risk of overselling, cost savings, avoiding excess stock, greater insights, better terms with vendors and suppliers, more productivity, increased profits, a more organised warehouse and a better customer experience.

What is inventory turnover?

Inventory turnover is a financial ratio showing how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.

Calculating inventory turnover can help businesses make better decisions on pricing, manufacturing, marketing, and purchasing new inventory.

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