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What's the best way to track inventory for a retail business?

Start with a point-of-sale system that tracks inventory at the item level and syncs with your accounting software. If you’re using QuickBooks Online, look for a POS that integrates directly so sales automatically reduce your inventory count and update cost of goods sold. Without that connection, you’re left manually entering inventory changes, which falls apart quickly once you have more than a handful of SKUs.

Set up each product with a name, SKU, cost, and selling price. This sounds tedious upfront, but it’s what lets you see real margins by product instead of guessing. If you sell candles at different price points, you need each one tracked separately. Lumping everything into “inventory” as one number tells you nothing useful about what’s actually making money.

Pick a costing method and stick with it. FIFO (first in, first out) is the most common for retail and the easiest to understand. It assumes you sell your oldest inventory first. This matters because your cost of goods sold and your ending inventory value on the balance sheet depend on which costing method you use. Your tax accountant will need to know this, and switching methods later creates headaches.

Physical counts are not optional. Your POS system tracks what should be on the shelves, but theft, damage, miscounts during receiving, and returns that don’t get scanned back in all create discrepancies. Do a full physical count at least quarterly. If you have high-value or high-theft items, count those monthly. Compare the physical count to what your system shows and investigate the differences. That gap is shrinkage, and you need to know whether it’s a problem.

Reconcile your inventory records to your books regularly. The inventory balance in QuickBooks should match what your POS system reports. When these numbers drift apart, your financial statements become unreliable. Your cost of goods sold will be wrong, your gross margin will be wrong, and any business decisions based on those numbers will be based on bad data. A QuickBooks ProAdvisor in Chandler can help you set this up so the integration works correctly from the start.

Track reorder points so you’re not guessing when to restock. Most POS systems let you set a minimum quantity for each item. When stock drops below that number, you get an alert. This prevents both stockouts that cost you sales and overordering that ties up cash in product sitting on shelves.

The common mistake with retail inventory is treating it as a once-a-year problem for tax time. By then, the numbers are so far off that cleaning them up takes significant effort. Staying on top of inventory accounting throughout the year means your books are always accurate, your tax preparation goes smoothly, and you actually know which products are worth reordering and which ones are quietly losing you money.

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More Questions

How do I separate personal and business finances?

Open a dedicated business bank account and credit card, use them exclusively for business transactions, and pay yourself through a consistent transfer. Every personal charge that touches your business accounts creates extra work and risk.

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Do contractors need to track work-in-progress on their books?

Yes, especially if your projects last more than a month or two. WIP tracking matches costs incurred to revenue billed on each job so your financial statements reflect reality instead of a misleading snapshot.

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How often should a small business reconcile its books?

At minimum, reconcile monthly. This means matching every transaction in your accounting software to your bank and credit card statements. Businesses with high transaction volume or cash handling should reconcile weekly.

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Can a bookkeeper fix books that were done wrong by someone else?

Yes, and it's one of the most common reasons business owners seek bookkeeping help. A cleanup involves reviewing reconciliations, fixing miscategorized transactions, and correcting account balances so your financials are accurate going forward.

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What are the bookkeeping requirements for a franchise?

Franchises have standard bookkeeping obligations plus franchisor-specific requirements like financial reporting formats, royalty tracking, and audit readiness. Your franchise agreement dictates much of what your books need to look like.

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How do I handle subcontractor payments in my books?

Record each subcontractor payment as an expense coded to the correct job, collect a W-9 before making the first payment, and track cumulative totals per vendor so you're ready for 1099 filing at year end.

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Jackrabbit Accounting is a Chandler firm serving small businesses across the East Valley and Greater Phoenix. Led by Sean Larsen, CPA, we provide bookkeeping, controller, and fractional CFO services backed by over a decade of corporate finance and Big 4 accounting experience.

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