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.