Inventory Management with Accounting Software: Best Practices and Techniques

Why Inventory and Accounting Tools Must Work Together

Inventory is one of the biggest costs for any business that sells products. But the truth is, your stock doesn’t make you any money until you actually sell it. That’s why managing inventory well is more important than many business owners know.

• What is Inventory Management?

  It’s simply about tracking all the goods you purchase, store, and sell, from the moment they enter your storefront to when they reach your customer. Good stock management means you always have just enough, not too much or too little. This helps you meet customer demand without wasting money on items that may not sell.

  • Good inventory tracking helps you avoid common problems like:

    • Running out of products that customers want (stockouts).
    • Buying too much and letting items either expire or get damaged.
    • Spending too much money on extra stock that just sits on the shelf.
    • Mixing up customer orders, especially when selling online and in-store together.

  Accounting tools work hard to manage your inventory and prevent the common problems listed above. They help you manage your money from recording your sales and expenses to tracking profit and even debts. Using the best accounting tool means you always know if your business is truly making a profit or just moving goods with no gain.

  When you have both accounting and inventory management software for small businesses, you get the best way to manage inventory and your finances together. Each sale removes the item from your stock automatically, you can see the cost of your goods in your accounts, and you’ll always know exactly how much profit you’re making.

• Why it’s Important to Manage Both Properly in Business

  It’s simply about tracking all the goods you purchase, store, and sell, from the moment they enter your storefront to when they reach your customer. Good stock management means you always have just enough, not too much or too little. This helps you meet customer demand without wasting money on items that may not sell.

  Many small business owners focus only on buying and selling goods, but forget how much money can get lost in between. When your inventory management and accounting work together, your business runs more smoothly, and you keep more profit in your pocket.

  • Here’s why managing both properly is so important:

    • See Your True Financial Performance: It’s not enough to know how much you’ve sold. You also need to know how much it costs to buy that product, how much profit you’re really making, and where you are losing money. A good accounting and inventory software for small businesses shows you your real profit, not just sales figures.
    • Improve Cash Flow: Poor stock management ties up your money in products that don’t sell. Good inventory management helps you free up cash so you can buy what sells faster. You’ll know the best way to manage inventory levels and avoid dead stock.
    • Spot dead stock easily: Dead stock means products that sit on the shelf for too long without selling. With good inventory tracking, you can see which items are not moving and run discounts to clear them out, making space and money for better-selling products.
    • Work More Efficiently: When you don’t have to count stock manually every day or search for missing receipts, you save time and reduce mistakes. A good inventory and accounting software keeps all your records in one place, making your daily work easier.
    • Customer Satisfaction: There’s nothing worse than telling a customer you have a product, only to find out it’s finished. When you manage your stock properly, you know exactly what you have available. This means your customers can trust you, come back again, and even tell others about your business because of your loyalty.

  Good inventory management and best accounting practices help you run your business with less stress, more control, and better profit. It’s the best way to stay ahead of mistakes, waste, and lost money. Tools like Esemie give you simple, reliable inventory solutions and reports you can check anytime on your phone.

• Inventory Management Types

  There are different ways to handle inventory management, depending on how you run your business and how much stock you have. The three most common types are manual, periodic, and perpetual inventory systems.

  • • Manual Inventory System: This is the simplest way to manage your stock. You physically count your goods and write down the numbers in a notebook or document them on an Excel spreadsheet. Many small business owners still use this method because it’s simple and cheap. But it’s easy to forget to update or mix things up when you’re busy.
    • Periodic Inventory System: This system is a step up from manual. You don’t track how many products or items you sell daily. Instead, you count all your stock at certain times, weekly, monthly, or quarterly, to see what you have left. Some businesses use barcodes and simple databases to make this counting easier.
    • Perpetual Inventory System: This is the most advanced and reliable type of inventory system. It updates your stock records in real time. Each time you sell an item or add new goods, the system adjusts your stock level automatically. This works best with barcode scanners or good inventory and accounting software that does the work for you. It saves time and helps you always know what you have in stock.

Inventory Valuation Methods

Inventory valuation methods are the different ways you can calculate how much your stock is worth. The method you choose depends on the type of products you sell, how often prices change, and what helps you manage your money better.

Some business owners even use more than one method for different goods, so they can know their true profit and plan their cash flow well.

Here are some common inventory valuation methods:

• FIFO (First In, First Out)

  FIFO is a simple way to calculate the cost of your goods when you sell them. It is an inventory valuation method where you count the oldest product you bought as the first to be sold, even if you physically sell newer items.

  For example, let’s say you bought 50 crates of drinks in January for ₦5,000 per crate. Then you eventually sell each of those crates (including profit) for ₦6,000. In February, the prices went up, and you bought another 50 crates for ₦6,000 per crate. Your new selling price is now ₦7,000. However, you still have some products from January, which you bought for ₦5,000. When using the FIFO valuation method, after a customer makes a purchase, your records would read your cost price as ₦5,000, and your profit as ₦2,000.

  This way, your accounts show the actual cost based on when you bought the goods.

• LIFO (Last In, First Out)

  LIFO is the opposite of FIFO. With LIFO, you count the newest (most recent) products you bought as the first to be sold, even if you physically sell older items. Using the same drink business, you bought 50 crates in January for ₦5,000 each, then bought 50 crates in February for ₦6,000 each. When a customer buys 1 crate for ₦7,000 in March, LIFO means you record the cost as ₦6,000 (the February price - the last/newest stock you bought). Your profit would be ₦7,000 - ₦6,000 = ₦1,000.

  With FIFO, you use the oldest costs first, which gives higher profits during inflation. However, with LIFO, you use the newest costs first, which gives lower profits during inflation. LIFO can result in lower taxes since profits appear smaller. It also gives a more realistic view of current costs since your cost of goods sold reflects what you'd actually pay to replace inventory today. This makes budgeting easier because you know your real replacement costs. Unfortunately, Nigerian accounting standards and tax laws generally don't accept LIFO because it’s more complex to track than FIFO and shows lower profits, which banks don't favor when evaluating your business.

• Weighted Average Method

  The weighted average inventory valuation method is a straightforward and reliable way for small business owners to calculate the value of their inventory and the cost of goods sold. Rather than tracking each product cost, this method takes the total cost of all inventory on hand and divides it by the total number of units available. The result is an average cost per unit, which is then used to value both inventory sold and inventory remaining.

  For example, imagine you bought 90 lipsticks at different prices, and the total cost came to ₦135,000. To find the average cost per lipstick, you divide ₦135,000 by 90. That gives you an average cost of ₦1,500 per lipstick. Each time you sell a lipstick, you use this average cost to calculate your profit, no matter how much that particular lipstick originally cost. This method is especially useful for small businesses that deal in large quantities of similar or interchangeable items. However, it's important to note that the weighted average method may not be ideal for businesses that sell unique, high-value, or widely varying products.

• Specific Identification Method

  The Specific Identification Method is an inventory valuation approach that tracks the exact cost of each individual item sold and remaining in stock. It’s the most precise method because it directly matches the actual purchase cost of each item to the specific unit sold, rather than using an average or flow assumption like FIFO or weighted average. For example, if you sell unique items like furniture, electronics, or cars, you can tag each item with its purchase cost.

  It’s a good method for businesses that want accurate inventory tracking and use barcodes or a mobile app for inventory management.

Inventory Management Techniques

Inventory management techniques are the different ways you can keep track of your stock and make sure you never run out of goods or have too much. These techniques help you know what you have, what you need to buy, and when to restock.

Inventory management is about controlling your stock, while inventory valuation is about knowing how much your stock is worth in money.

Here are some common inventory management techniques:

• Retail Inventory Method

  This method is popular in big supermarkets or stores that sell many similar products. Instead of counting every single item daily, you estimate your stock value by taking the selling price and removing your usual profit margin. It’s a quick way to check stock value without doing a full count every time.

• Just-in-time (JIT)

  This technique helps you keep as little stock as possible. You only order goods when you really need them. JIT saves storage costs and helps you avoid dead stock, but you need reliable suppliers and a good inventory system to make sure you don’t run out of products customers want.

• ABC Analysis

  ABC analysis is a simple way to sort your stock into three groups based on their value to your business. “A” items are your most valuable goods, they make you the most money, but might be just a small part of all your stock. “B” items are important too, but not as valuable as “A” items. While “C” items are the least valuable per item, but often take up the biggest space in your store.

  This system helps you decide where to focus your money and attention. You can invest more in protecting and managing your “A” items, plan promotions for “B” items, and not waste too much money or space on “C” items.

• Safety Stock

  Safety stock is extra stock you keep aside just in case something unexpected happens, like, when your supplier delays delivery, or you suddenly sell more than usual.

  For example, if you sell bottled water and you know demand can double during the hot season, having safety stock means you won’t run out and lose sales.

• Reorder Point (ROP)

  Your reorder point is the level your stock reaches that tells you it’s time to restock before you run out. For example, if you sell packs of soft drinks and your ROP is 20 cartons, you know once you reach 20 cartons left, it’s time to order more. This helps you avoid disappointing your customers when they come and you have nothing left.

  Your ROP can change during the year because of things like seasonal sales, supplier delays, or changes in how fast your products sell. That’s why it’s good to check your reorder points from time to time to make sure they still work for your business.

• Dropshipping

  With dropshipping, you don’t keep goods in your store. Instead, when a customer places an order, you buy the item from a supplier who delivers it straight to the customer. This means you spend less money on storage. Drop shipping

Best Practices for Managing Inventory With Accounting Tools

Good inventory management is not just about counting your stock; it’s about using the right tools and habits to keep everything under control. Here are some simple best practices that will help you manage your stock and your money together:

• • • Record Everything That Comes In and Goes Out: Don’t just rely on guesswork or assumptions. Always record it immediately when you sell items or receive new goods. This way, you always know exactly what you have left and avoid mistakes that can cost you money.
    • Use a Cloud-Based Solution (To Keep Records Safe): Writing in notebooks or saving files only on your computer can lead to lost records. A good inventory and accounting software for small businesses that works in the cloud keeps your data safe. Even if your phone or laptop spoils or gets lost, your records are secure online, and you can check them anytime, anywhere, on any device.
    • Review Reports Regularly: Make it a habit to look at your sales, stock levels, and profit reports every week or month. This helps you see what is selling fast, what is not moving, and where you might be losing money, so you can fix them quickly.
    • Set Stock Alerts: Use an inventory system that sends you automatic alerts when stock is low. This helps you reorder at the right time, keep customers happy, and avoid losing sales because you ran out of stock unexpectedly.
    • Connect Sales to Inventory: The best way to manage inventory is to connect your sales directly to your stock. That means every sale you make reduces your stock level automatically. This reduces errors and makes your record-keeping more accurate.
    • Use a Tool That Allows Both Inventory and Accounting in One Place: Use an all-in-one inventory and accounting software, like Esemie, to track your stock, sales, expenses, and profit together. It saves you time, reduces mistakes, and helps you run your business with less stress.

Manage Your Inventory Better With Esemie

Combining your inventory management with your accounting in one system has so many benefits. You get real-time updates, avoid manual mistakes, and your financial reports are always up to date. Automation also helps you avoid problems like selling goods you don’t have in stock or forgetting to reorder fast-moving items.

Esemie follows best accounting and stock management practices, so you can manage your stock, costs, and money with less stress. Everything is clear and simple, from tracking what you buy and sell, to seeing your profit and getting reports you can trust.

• How Esemie Helps You Manage Inventory

  • • Real-Time Stock Tracking: With Esemie, you can easily add every product you sell, including the product name, description, cost price, selling price, and quantity. If your products have variations (like colour, size, or type), you can also add those too.
    • Easy Restock and Stock Removal When your products run low, you can quickly restock. If you need to remove or delete a product that’s expired or damaged, you can also do that within the inventory feature dashboard.
    • Integrated Sales and Inventory Records: Each time you make a sale, your inventory updates automatically. This means you always know how much stock you have left and the total value.
    • Clear Overview and Reports: Esemie shows you a simple dashboard where you can see your total inventory, total units sold, and the total value of your stock at a glance. You can also search for specific products or filter what’s in stock, out of stock, or has variations.
    • Better Cost Control: By recording your cost price and selling price for each product, Esemie helps you see how much profit you make on every item you sell. This makes it easier to spot out dead stock, control costs, and keep your cash flow healthy.

Are you ready to keep better track of your goods and money? Try Esemie today and see how simple inventory management can be for your business.