Is perpetual or physical inventory the best method for your business? Knowing the difference between the methods, how they compare, and how they affect your processes will help you make the right decision.
Perpetual inventory continuously tracks and records items as they are added to or subtracted from the inventory. And it keeps track of the cost of goods purchased and sold. Physical inventory uses a periodic schedule to manually count and record items and keep track of the cost of what’s bought and sold.
Keep in mind that neither perpetual nor physical inventory eliminates the need to visually inspect items and ensure they aren’t damaged, spoiled, or stolen. But there are differences in the technology you’ll need, the data you’ll receive, and the cost of inventory management systems.
What factors can help you decide whether perpetual or physical inventory is right for your business?
Inventory size – The size of your inventory determines how much time it takes to manage it. It’s easy to count a small inventory manually, but counting a large inventory can be overwhelming. Anticipate your projected growth and plan for your long-term needs.
Business locations – Does your business have multiple locations—perhaps with goods exchanged between them? Weigh the pros and cons of physically tracking items at each site vs. using perpetual inventory with shared data.
Transaction volume – Is your business a startup, or is it established? Think about the number of your daily transactions and how frequently you need to access data about purchases, sales, and inventory status.
Budget – Calculate the cost of labor for periodic physical counts vs. a system that provides perpetual data.
Whether you choose perpetual or physical inventory, you don’t have to keep it strictly manual. You can research online and find a large variety of accounting and inventory software and apps. And you’ll find them at varying costs to fit your budget and help simplify your inventory tracking process.
Having the best tools in place is essential to helping your business get where it needs to be. Inventory management software makes staying on top of all-things-inventory really simple.
Ready to try a computerized inventory system? Start a free trial of Sortly today.