Small Business Inventory Control: Types + Tips

For a small business, a miscalculated order can tie up much-needed cash. Inventory control is how retailers avoid costly overstocks and stockouts—a problem that cost North American retailers $415 billion in 2025, according to research group IHL.

Inventory management software can help small businesses know what’s in stock and order to match. Plant Material, a Los Angeles nursery, uses Shopify’s inventory management tools to check stock levels and order items incrementally as needed instead of in bulk. Cofounder Matthew Burrows tells Shopify Masters that this tactic has saved the company six figures. 

“I can pull out my phone while I’m at a grower, look at inventory levels, and address whether or not I need to buy a bunch of stuff while I’m there,” Matthew says. “That’s super impactful for me because I don’t have to over-inventory. I can see what I need in real time.”

Here’s what inventory control involves, four methods small business retailers use to manage stock, and how to implement an inventory control system for your business.

What is small business inventory control?

Small business inventory control is the process of tracking the quantity and movement of stock to ensure your small business has the right amount of inventory when it is needed. Inventory control is part of inventory management, which also includes forecasting customer demand, purchasing goods, and optimizing stock replenishment.

Practicing effective inventory management helps small business retailers manage cash flow and prevent overstocks (when a business keeps excess inventory on hand) or stockouts (when available stock is at zero). 

Some customers won’t wait for a restock. According to the 2025 Global Shopper Study by Zebra Technologies, 52% of shoppers polled left a store without getting all of their desired items, often due to products being out of stock or difficult to find. Inventory tracking software can alert you to low stock levels early, before they turn into stockouts.

Why inventory control can be difficult for small businesses

While big box retailers have the advantages of scale (including more storage space and more advanced inventory software), smaller businesses face unique challenges when managing inventory:

• Stockouts vs. overstocking. Bigger retailers may have the cash flow to absorb swings in inventory levels due to customer demand, but small businesses often don’t. Too much stock can take up shelf space and tie up cash flow, while too little leads to lost sales. 

• Cost of software vs. manual inventory management. While major retailers have the budget for enterprise-level inventory control software, small businesses have to find solutions that track inventory accurately and affordably. Using manual inventory control methods instead can take a lot of time and lead to errors. 

4 types of inventory control methods

• ABC analysis
• FIFO (first in, first out)
• JIT (just in time)
• Perpetual inventory system

Here are four methods you can use for inventory control in your small business: 

ABC analysis

With ABC inventory analysis, you organize your inventory into three categories:

• A: your top-selling products (around 80% of your revenue)

• B: products that account for the next 15% of your revenue

• C: items that account for 5% of your revenue

ABC analysis helps you prioritize stock based on what sells fastest and generates the most revenue. Lanny Smith, founder of the athleisure company Actively Black, uses historical data in his Shopify admin to sort products into these categories. ABC inventory analysis is a native feature available in Shopify.

On Shopify Masters, Lanny talks about making sure the online store has safety stock of the brand’s A-level products when preparing for the Black Friday shopping season.

“We’re going long on those five to 10 bestselling collections that we just cannot keep in stock, making sure we have those for this season,” he says.

FIFO (first in, first out)

With the FIFO method, you sell the oldest inventory first. This is common for retailers who sell perishable goods, such as food, plants, or cosmetics.

Floral gifting brand Fresh Sends uses FIFO. Because flowers are perishable, cofounder Ty Hiss buys inventory in small batches.

“We’re able to purchase our floral inventory on a weekly basis, and we can sell through that inventory,” she says on Shopify Masters.

In addition to keeping products fresh, this approach prevents cash from being tied up in stock. The inverse, LIFO (last in, first out), sells the newest stock first and is less commonly used by retail businesses.

JIT (just in time)

JIT is a method where inventory is ordered in smaller quantities, closer to when it is needed. Instead of keeping large amounts of stock in warehouses, retailers order stock as needed rather than in bulk.

Matthew of Plant Material describes buying this way. If a display table needed six plants and had two, he’d buy four—enough to fill it out for the weekend, and no more.

“I could do that multiple times to fill a table,” he says. That means the shop looks full without cash tied up in stock.

JIT can work well for businesses with limited storage or tight cashflow. However, this method of inventory control also leaves businesses vulnerable to supply chain disruptions. Because it depends on timely deliveries, delays from suppliers can lead to stockouts.

Perpetual inventory system

With perpetual inventory systems, businesses use inventory management software to track software in real time instead of relying on manual data entry. As items move through the supply chain, the system updates inventory levels automatically. This gives you more accurate, up-to-date inventory data compared to manual tracking.

A perpetual inventory system uses barcode scanning or RFID technology, so you have exact inventory counts as every item is scanned at each stage. That makes perpetual systems useful for businesses managing multi-location inventory control.

“Accurate data on available stock is the biggest benefit of using a perpetual inventory system,” George Pitchkhadze, CMO of Keyzar Jewelry, told Shopify.

“We always know what we have enough of and what we’re about to run out of. There is zero risk of us running out of a specific diamond or setting because we reorder or remake what we’re missing as stocks dwindle.”

How to set up inventory control for the first time

1. Determine which items need tracking
2. Activate inventory tracking
3. Activate inventory tracking
4. Enter starting inventory quantities
5. Set out-of-stock behaviors
6. Test inventory setup

Follow these steps to start using inventory control for your small business:

1. Determine which items need tracking

First, decide which items you need to track for inventory accuracy. This usually includes physical products that you stock and ship, products with limited quantities, items you need to order from suppliers, and products you sell in person. Enter these into a software platform with inventory management tools, such as Shopify. 

Bootstrapped small businesses can do this with a spreadsheet, but manual inventory control takes time and introduces the risk of human error, which can affect inventory accuracy.

Digital products, such as ebooks or digital art, do not need to be included because they aren’t limited by physical stock. Made-to-order products may not need inventory tracking, but the components you use to assemble or create them do.

2. Configure inventory locations

Whether your inventory is stored in multiple warehouses, one warehouse, or your retail store, you need to account for each location in your inventory system. You can use separate tabs of a spreadsheet to set up location-based inventory records manually, or use software to do this automatically.

If you have one inventory location, the default location setting in your software is usually enough. If you have multiple locations, make sure to enter each one into your software or spreadsheet before starting to track inventory.

3. Activate inventory tracking

For each product that needs tracking, turn on inventory tracking in your software so the system automatically counts stock as you receive and sell items. This gives you real-time visibility across your entire inventory.

To do this in Shopify, select Products from your admin panel, and click the product you want to track. In the Inventory section, activate inventory tracking. For retailers with multiple locations, select which locations stock that product. 

4. Enter starting inventory quantities 

Start building inventory records by entering the current stock levels of your products. If you’re doing this in a spreadsheet, enter in the quantities of each item you’ve designated to track. These are figures you will update over time as you buy and sell goods.

Within small business inventory control tools, every update is recorded in your adjustment history, so you can track discrepancies and maintain accurate inventory records. In Shopify, you can enter quantities individually via the product page, by using the bulk editor, or by uploading a CSV file with quantities for many products.

5. Set out-of-stock behaviors

In your inventory management system, decide what happens when an item is out of stock. To reduce the risk of stockouts, set reorder alerts—which you can build for free with Shopify Flow—when supply gets low.

For automated inventory systems, you can choose to stop selling when an item runs out of stock or continue selling it. 

If you choose to stop selling during a stockout, customers won’t be able to add it to their cart, preventing overselling and customer disappointment. You could also choose to continue selling that item if you know you can quickly restock it without causing a shipping delay. This option is also useful for pre-orders and made-to-order items you produce after the customer purchases them.

6. Test inventory setup

Before you start inventory control, test your setup to make sure everything works properly. 

With Shopify, you can do this by going to the Products menu in your Shopify admin and selecting Inventory. Next, verify that your products show the correct stock levels. Then place a test order to ensure the inventory decreases correctly, and cancel it to verify that inventory levels return to the previous quantity.

If your inventory levels don’t update as you expected, review your inventory states and make sure your tracking is activated correctly.