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QuickBooks might be all you need for inventory management!

It is no secret that Intuit’s QuickBooks accounting program is very popular among small businesses. It is intuitive, reliable, and has strong support. Of course, like any off-the-shelf application, QuickBooks does have weaknesses including inventory. But the question is just how much money do you need to invest in a dedicated inventory management solution? Do you actually need to invest any money at all outside of QuickBooks?

The answer can easily be “No.” This is especially true if you can recognize the software’s limitations and those limitations are of no significant detriment to your company’s operations.

I have successfully set up QuickBooks Premier and Entreprise for wholesale/distributor clients–this has proven to be an accomplishment that I did not think would have a very long life, but QuickBooks continues to, for the most part, serve the clients’ needs. Rather than discussing what QuickBooks can do, which is surprisingly a lot for such an inexpensive program, I will briefly discuss the limitations you may encounter when utilizing QuickBooks Premier or Enterprise for inventory management:

Inventory Groups:

Inventory groups are items that are typically sold as a bundle, but also individually. Additionally, the inventory counts of items included in a group are individually adjusted when a grouping is actually sold. This is in contrast to an assembly of items in which individual items are deducted from inventory upon the creation of the assemblies, and the assemblies take the place of the individual items. Groupings can be a great way to minimize data entry, but there is one blatant limitation within QuickBooks: you can only have 20 items per group!

Thus, if you have a need to include more than 20 items in a group, you will need to break the group into two or more individual and logical groups. While inconvenient, it is still superior to the alternative of manually entering 20+ line items on a sales order, invoice, or sales receipt.

Discounts:

The method of applying trackable discounts on sales orders and converting those discounts to an invoice is anything but elegant. It can also prove to be a little frustrating, especially in the case of backorders when the discount happens to apply to the backordered items.

Setting a discount in QuickBooks requires the use of a Discount item. This is entered as a line item either immediately below the single item you want to discount, or immediately below the Subtotal item if you are discounting multiple items. If you initially enter the discount on a sales order and then invoice the sales order in full, you are all set and will not encounter any issues. However, if you are only able to partially fulfill the invoice due to a backorder situation, or at the request of the customer, you will have to manually adjust the invoice to account for the discount by adding the discount on the invoice.

This problem only arises if you want to be able to itemize and track the discount. If you do not care about either of these (which goes against good accounting practices), then you can just manually adjust the price of each individual item and the discounted price will correctly transfer to the invoice from a sales order.

Costing method:

There are various inventory costing methods including LIFO, FIFO, and Average. I generally recommend average costing for small businesses because it reduces accounting costs and makes life simpler. And that is a good thing because QuickBooks users only have the option of average costing.

If you must utilize LIFO or FIFO and still want to use QuickBooks for your accounting, you will have to purchase a third-party inventory management solution such as FishBowl, AdvanceWare, or AdvancePro, just to name a few. Please note that while I named three third-party solutions, it does not serve as an endorsement or recommendation of them.

Bar coding and serial & lot tracking:

QuickBooks Premier and Enterprise cannot utilize bar coding or serial & lot tracking without the assistance of the web-based Warehouse Management or third-party solutions (that may or may not be web-based). While a “solution” technically exists via the Warehouse Management, my own review of the program has led me to believe it is not a viable option for small businesses. I found it to be anything but intuitive. I also hate that it is web-based.

There used to be other inventory limitations but a number of them have been resolved in Quickbooks Premier and Enterprise 11.

If your business can survive within these limitations, it is very likely you can utilize QuickBooks for your inventory management needs, at least until your businesses has grown enough to justify the added expense of dedicated inventory management solutions. If multi-million dollar companies can use QuickBooks for inventory management, and quite a few do, it is likely you can as well.