How It Can Affect Your Business

Inaccurate inventory can lead to various problems. Depending on the severity of the inaccuracy, it will put your cash flow in danger and your business.

It Leads to Dissatisfied Customers

Consider this scenario: based on your inventory data, you believe there are enough products in stock to deliver to your customers. When your client makes the order, you go into your warehouse only to find out there aren’t. This leads to a very awkward phone call where you tell your customer the order cannot be completed.

This was an honest mistake, but clients will likely not be happy about it. After such a negative experience, most will even decide to switch businesses. Moreover, one unhappy customer will reach more ears than a happy one. This can lead to losing clients, putting your business in danger.

It Wastes Man Hours

Inaccurate inventories will affect not only your clients but also your business. By this, we mainly refer to the time management of your employees.

As you probably already know, time is money for every business. Before discovering there is an inaccuracy in the inventory, one will spend time searching for the missing goods. Once they realize they are away, they will have to spend extra time picking, packing, and delivering another product.

Moreover, think about the time you or your employee will have to spend talking with your clients. They will be forced to validate their mistakes and find the best course of action to fix them. Very often, finding a solution will be challenging and require time. You will likely need to issue another order, which will bring you back to square one.

Unreliable and Inaccurate Forecasts

A planner can make a reliable forecast if the inventory has been done correctly. If the accuracy level is low, planners have nothing else to use than their instinct. This might prevent them from making an accurate plan for the future.

When a forecast is incorrect, you may not be able to recognize a trend when it pops up. Demand peaks go unnoticed as well, which can lead to a shortage. Regularly doing inventory will keep your stock levels accurate, and you can replenish them when necessary.

Incorrect Inventory Write-Offs

You are entitled to a fair number of deductions as a business owner. This includes deductions from items that you hold in your inventory. The trick is that you should know exactly what you are filing for.

Two things can happen during write-offs if your stock levels are inaccurate. First, you can lose hefty deductions. The government knows what you are entitled to receive, but you must request it formally. You can receive up to 10% back in deductions if you do.

The second thing that can happen is that you file for incorrect deductions. When you have the right to a write-off but don’t file for it, the IRS does not take much notice of it. However, when you file for something you are not entitled to, the IRS will receive a warning. Not only do you risk an audit, but a fine as well.

Incorrect Amount of Inventory

While there’s no formula for how much inventory you should carry, you must be careful to create a balance. You may have too much stock, or perhaps the amount you have is too little. Regardless of the case, both can negatively affect your business.

For example, holding too much inventory can lead to increased costs for storage, safety concerns, and higher product obsolescence. On the other hand, if the stocks are too low, you can experience a shortage of products. This can lead to reduced cash flow and many unhappy clients.