Understanding Periodic And Perpetual Inventory - What's Right For You?

We'll take a look at periodic and perpetual inventory systems, break down their functionality, and discuss their pros and cons. Learn how you can ensure your business succeeds by picking the right inventory system.

If you run a small business or store, your inventory is probably your most valuable asset.

Because of this, it's critical that you keep an accurate record of your inventory. Without an accurate inventory record, accounting and record keeping can be very difficult – and you may not have a full understanding your businesses' finances.

There are two common types of inventory systems that are used by small businesses. The first is a periodic inventory system, and the second is known as perpetual inventory system. In this article, we'll take a look at these two inventory systems, break down their functionality, and discuss their pros and cons.

Read on, and learn how you can ensure your business succeeds by picking the right inventory system.

Periodic Inventory Systems

Periodic inventory systems are most commonly used in small businesses. In this system, inventory is generally only recorded and analyzed periodically, according to the needs of the store.

For example, a small clothing shop may only run a monthly inventory. During this time, the inventory on-hand will be recorded, and then compared to the sales for the month.

In this system, a physical inventory count is required, usually performed by staff during off-hours. Then, the results from the inventory count are collated, and accounting records are updated.

This is the oldest form of inventory management, and has been in use for decades before modern inventory control systems were introduced.

Pros of periodic inventory system

There are some benefits to periodic inventory systems. Let's take a look at these now.

Can be less expensive to run - Because periodic inventory is so simple, it's often quite inexpensive to use a periodic inventory system. This makes it very popular among sole proprietors and small businesses which have very small inventories.

Doesn't require inventory management software - While inventory management software is very affordable, some business owners are still reluctant to invest in the technology required to run a modern inventory management program.

Cons of periodic inventory system

Though there are some benefits to them, periodic inventory systems have quite a few issues that have caused them out of favor in recent years. Here are a few of these issues:

Maintaining an accurate inventory count is very difficult - Periodic inventory is very susceptible to human error. If you or a staff member fails to record an accurate inventory, your records may be inaccurate.

Can be extremely time consuming - Counting each individual inventory item in your storeroom, shop floor, and anywhere else you may keep inventory can be extremely time consuming for a larger business.

Not scalable for larger businesses - If your business continues to grow, your inventory will quickly get out-of-hand, and periodic inventory will no longer be a viable way to keep track of it.

Hard to restock accurately - Because inventory counts are only made during a specified time period, it's harder to restock popular items, or understand what products you may be running low on.

Accounting systems must be modified at the end of the period - Your accounting records will be highly inaccurate, and must be reconciled with your physical inventory levels after each inventory period.

Perpetual Inventory Systems

Inventory management software is at the heart of all modern perpetual inventory systems. So if you're not sure where to start, begin by checking out modern inventory management software, and finding the one that fits your business!

Perpetual Inventory Systems are a much more efficient, modern solution to inventory management, and are in use in just about every modern business.

As the name suggests, perpetual inventory systems record inventory movement perpetually. Whenever a product is sold, thrown away, or written off, a modern inventory management software system records this change – and updates inventory counts accordingly.

This makes it a much more accurate and reliable method of inventory tracking, compared to periodic inventory systems. Perpetual inventory systems have a variety of benefits for small business owners. Here are just a few of them.

Ensures accurate inventory count - With a properly implemented perpetual management system, it's easy to track your inventory, and ensure that your records are accurate.

Updated in real-time - Instead of being manually updated after a set period of time, your inventory records are constantly updated after each and every sale. This makes it easier to track business performance, reduce shrink, and track sales.

Aids in re-ordering and restocking - Because you always have access to information about current inventory counts, it's much easier to reorder and restock popular products.

Accounting is much easier - Modern perpetual inventory systems can often integrate directly with accounting programs, providing up-to-date balance sheets that can provide business owners with more accurate, useful sales information.

Compared to periodic inventory systems, perpetual inventory systems are almost always a better choice.

Though the cost of buying the equipment and software to run a perpetual inventory system can be a bit steep, the cost savings of having a modern inventory control system make it a wise financial investment.

Invest In Inventory Management Software Today - Change Your Business With Perpetual Inventory Systems!

If you choose the right software, you're sure to have an easy time implementing your perpetual inventory system - and you'll enjoy more accurate record-keeping, higher profitability, and a much easier inventory management process..