Inventory management is an important component of accounting. You don’t want to stock too much or too less, similarly, you don’t want to have an inventory too large and is almost impossible to liquidate if need be. Inventory management helps with all such aspects.

On the other hand, you also want to make sure you have enough so that you can meet customer demands. As far as inventory management is concerned, there are two methods you can go for. These include:

Periodic Inventory Management

This is a non-continuous method of inventory management, which relies on manual procedures in order to keep track of sales. It really depends on the owners; they can choose to record sales on a weekly or monthly basis.

The staff makes a list of inventory and counts the number of items that have been sold. This way, business owners know how many items are available at the beginning and end of a specific period.

This method enables business owners to benefit from low initial costs. You don’t even need a computer system. However, the margin of error is very high in these cases. In addition to that, it’s also extremely time consuming.

Perpetual Inventory Management

This is the most commonly used method of inventory management. It gained more popularity after retailers started using digital scanners and POS terminals.

All the products have a specific bar code which facilitates immediate recording of all transactions. This makes up for accurate records and easy inventory management.

This method requires software, which provides owners with details regarding their inventory level. The owners receive notifications when the stock levels get too low.

There’s a catch though. The initial costs of implementing perpetual inventory management are very high. For small business owners, it might not be affordable.

Which Is Better?

Now that we have discussed the methods, let’s get to the real question; which one is really better?

It depends on your business. If you’re offering a service, you don’t really need an inventory management system.

We would suggest that small business owners should start with periodic inventory management since the costs are lower.

In contrast, if you’re running a large business, you’d be better off with a perpetual inventory management system.

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