Too Much or Too Little Stock – How do Small Businesses and Startups Overcome?

Urmi Sengupta | Updated on: July 31, 2023

Poor inventory management is often considered the leading cause of business inefficiencies. For any business, running short on inventory level means losing sales opportunities, leading to losing customers to your competitors. On the contrary, excess inventory often translates to cash crunch, storage issues, thereby reducing profit margins.

You must understand the right amount of stock you need to run seamless operations as a business. This means you need to manage and track the following factors – how much has been sold, the remaining quantities, is the stock moving according to the market demand, and so forth.

So, how do you strike the right balance between having too much or too little stock? Here are some of the impacts of excess or way too little stocks.  

Effects of having excess inventory 

Excess inventory is usually the result of a company’s lack of ability to predict market demands. Although having inventory surplus can prevent situations like running out on stocks, it could also lead to financial constraints, creating business disruption. Here’s a quick rundown of the impact of having excess inventory:  

• Impacts cash flow 

Cash flow is considered a critical factor in running a business smoothly. To procure inventory, you need cash – implying tying up too much money in stocking up could be detrimental to the company’s cash flow. This could restrict other business decisions wherein cash is required. 

• Creates storage challenges  

Excess inventory also translates to storage challenges and bearing warehousing costs. It also leads to extra labor costs, restricting business growth opportunities. Hence, an inventory management system that provides real-time insights into the stock items, irrespective of the different batches or storage facilities, is critical in running smooth operations.  

Effects of having less inventory

Although having less inventory may seem ideal for many businesses, there are associated drawbacks like losing sales opportunities, not being cost-effective, and more. Here’s how running low on inventory can impact your business:  

• Missed business opportunity  

As a thriving business, the last thing that you want to see is losing your loyal customers to your competitors due to inventory shortage. That’s why carrying some extra stock of an item is considered essential for any business to thrive during its peak purchasing season. However, this common business problem can be solved with a robust inventory management solution that can provide insights into customer demands, predict sales opportunities, and more. 

• Increased dependency on supplier 

Running low on inventory means increased dependency on suppliers. Imagine a situation where a customer is looking for a particular product, and your source of inventory is inefficient; you would end up paying a higher price to your supplier to procure the goods. However, if your inventory is optimized with an intuitive solution, you could prioritize the items you hold basis the forecasted demand.  

How can small businesses and startups manage inventory?

Preventing understocking or overstocking means taking a multi-pronged approach towards inventory management. Businesses can deploy a lean inventory management strategy to manage, track, and predict market demands, enabling seamless operations. An intuitive inventory management solution that supports multiple product lines and allows you to segregate and define products basis groups, categories, locations, and more is the key to managing your inventory.

Re-order report in TallyPrime

For any business, understanding when to stock up is a crucial factor to success. That’s where inventory reorder technique comes into place because buying too early may lead to cash flow crunch and buying too late may translate to a stock out. An intuitive inventory management software comes equipped with reorder level module that helps businesses in strategically balancing their inventory.

Watch Video on inventory reports in TallyPrime:

How TallyPrime can help? 

With TallyPrime’s inventory management module, you can get real-time insights into stock quantity view reports on stock groups or batches, which would, in turn, help you procure stocks in advance, thereby reducing the chances of business setbacks. Here are some ways how TallyPrime can help in inventory management:  

• Provides an insightful stock summary statement with important details like stock closing and consumption details
• Tracks, analyzes, and depicts stock movement for a specified time period
• Real-time insights into reorder level allow you to understand the setbacks and analyze stocks that need to be replenished
• Inventory report allows you to analyze stock-wise profitability 
• Provides order summary that aids in tracking placed, pending, and completed orders  

Read more on inventory management software:

• What is Cash Management, and How Can it Benefit my Business? 
• Best Accounts Payable Automation Software in USA
• Personalize the Business Reports the Way You Want

Explore More Products