Two ideas keep inventory under control: knowing what your stock is worth, and knowing when to buy more.
What stock valuation tells you
Stock valuation is the money tied up in what you hold. It matters because it feeds your balance sheet, your profit calculation and your cash planning. If valuation is wrong, profit is wrong.
Common approaches include:
- Average cost: each unit is valued at the running average of what you paid.
- First in, first out (FIFO): the oldest stock is assumed sold first.
Whichever method you use, the key is consistency, and that purchases, sales, returns and transfers all update the same record.
Why valuation drifts
Valuation goes wrong when stock movements are recorded in one place and costs in another. A purchase entered late, a return that is not reversed, or a transfer between branches that only one side records will all skew the number.
Reorder points in plain terms
A reorder point is the stock level at which you place a new order. A simple way to set one:
Reorder point = average daily sales × supplier lead time in days + a safety buffer
For example, if you sell about 10 units a day and your supplier takes 5 days, you need 50 units to cover the wait, plus a buffer for busy days.
Setting them without overthinking
- Start with your fastest-selling items. They hurt most when they run out.
- Use your own recent sales, not guesses.
- Review the numbers each season, not once a year.
- Treat slow movers differently: reorder less, and watch for expiry or obsolescence.
Let the system do the watching
When sales deduct stock the moment they happen, low-stock alerts are timely, and reorder drafts can be prepared for you to review. That is the difference between finding out on Friday and finding out when a customer asks.
See how stock, purchasing and the ledger work together in a demo with your own items.
