If you’re a busy business owner, it can be easy to skip over stocktaking in favour of other (more enjoyable) tasks. But if you sell physical products, either online or in a store, stocktaking can protect your business from losing out. According to Crime & Tech, the UK loses almost £11 billion a year due to shrinkage, which includes the accidental or deliberate loss of stock due to theft or damage – so it’s worth making time for!
Not only is stocktaking an important part of inventory management, but it helps you make informed decisions and predictions.
This guide to stocktaking will run through what it is, why it’s important, the different methods you can use and how to do an effective stock take for your small business.
What is stocktaking?
Stocktaking – also known as wall-to-wall or inventory checking – is the process of physically checking the quantity and quality of items for sale in a stockroom or warehouse. It involves counting every piece of stock you have and noting down the number, whether on paper or through some software or technology. Many people also note the condition of the item to determine if it’s suitable for sale.
Why is a physical inventory important?
Conducting an inventory check can be really valuable to your business. By assessing your stock levels you can see:
- If there’s any missing, stolen, damaged or surplus stock
- If there are any discrepancies in your online stock compared to the physical stock – this is especially important for online retailers
- The cost of your stock, which is needed when you file your tax return
- What is selling well, so you can buy or make more of it
- What isn’t selling, so you cut down or halt restocking
- How streamlined your forecasting and restocking system is
- If any stock is due to go out of date if it’s perishable
- If any deadstock could be sold at a discounted price or given away
While your online inventory system should be able to catch most of these, a physical inventory eliminates any doubt and ultimately helps you to maximise sales and minimise losses.
Types of stock checking
There are five inventory methods that are all based on how often (or how little) you conduct a stocktake. They are:
- Annual stocktaking – occurs once a year and all of the stock is recorded at once. This is the minimum frequency that businesses should consider to keep their records accurate.
- Periodic stocktaking – occurs every month, few months or twice a year. Similar to an annual stocktake, all the stock is counted in one sitting and is the most popular form of stocktaking.
- Continuous stocktaking – occurs numerous times throughout the year and could involve different products being counted at varying times – e.g. certain products being counted once a week and others once a month. Continuous stocktaking makes it easier to prepare end-of-year statements as there’s always up-to-date information regarding stock levels.
- Spot checks – occurs randomly and usually because you’ve noticed some discrepancies. For example, if you notice a difference in physical stock levels of one item than that on your inventory software, you may carry out a spot check to discover the cause.
- Stockout validation – only occurs if a product is out of stock or very low. This method acts as more of a record of why and when a stockout occurred to help make sure it doesn’t happen again. If your chosen stocktaking software and physical method is accurate, you shouldn’t need to conduct a stockout validation.
The type of inventory you choose will depend on the kind of business you have.
For instance, if you’re a crafter and make the products that you sell yourself, your inventory will include raw materials, works in progress and finished items – all of which you’ll need to count in the stocktake. This means you may need to count raw materials more often to ensure you have what you need to fulfil orders. If you don’t, you may lose out on sales.
Advantages and disadvantages of stocktaking
A key advantage of stocktaking is being able to see if you’re overstocking. This may sound like a bad thing, but revealing if and how you’re overstocking could help you save money. Deadstock not only holds value that could be used elsewhere in the business but it also takes up space in storage – money that could be used for something else or saved.
Some businesses also use a stocktake to do a big clear up of their workspace or warehouse, which makes finding and maintaining stock easier and gives you and your workers a much nicer environment to work in.
There are no true disadvantages when it comes to stocktaking - so long as it's done right! Although it's a tedious task, a well-organised stocktake makes life easier for the business in the long run.
How to do a stocktake
Doing a stocktake is a big job - one that needs an airtight system and plenty of organisation. Here are our top tips for doing a stocktake in the most efficient way.
1. Plan ahead
When are you going to do the stocktake? Stocktaking can take 1-2 days depending on how much stock you have, so it’s worth thinking about the best time to do it. This could be spread out over evenings or shutting up shop completely. Be mindful that you may also need assistance, which could involve asking friends, family or staff for help and therefore booking their time.
Tip: avoid trading during your stocktake. Any sales made while you’re in the throes may mess with your numbers.
2. Define a process
Where are you going to start? What are you going to do with damaged goods? Deciding on these factors will help to determine a process. You could pick a category and work your way through one-by-one or use the wall-to-wall method and take stock of everything from one end of the room to the other. It’s up to you! But make sure everyone who is involved is briefed beforehand.
3. Create a schedule
Think of the schedule like a plan of action. It should include blocks of time allocated to certain stock categories or areas of the stock room and when to take breaks. This can help you plan how much time is needed to complete the stocktake in total, so you can let your customers know when you’ll be closed, and keep you on track.
4. Use a stocktaking app
If you have a website that sells stock online, the website builder you use may already have a stock management feature, making stocktaking easy.
If you have a mix of physical and online stock, you may find a third-party stocktaking app to record all of it at once digitally would be better for you.
There are a few stocktaking apps on the market, here are some options:
- Zettle – primarily used as a point of sale, but has stock management capabilities
- Zoho – has a whole suite of cloud-based software, including inventory management
- Inventory Now – promises simple inventory tracking
- TidyStock – ideal for Xero users as you can link the two accounts
5. Print off stock sheets
Regardless of whether you use inventory software, barcodes on your products or a POS system, you should print out an inventory list to mark down the stock levels of each product against what you have on your system. This system allows you to make notes and mark discrepancies against the software to double check it’s not a system issue.
6. Organise the stockroom
It might seem strange to organise a stockroom before a stocktake, but making sure everything is where it’s supposed to be will allow you to count everything under one category in one go and reduce anomalies.
7. Be thorough
In other words, don’t guess! The whole point of a stocktake is to confirm the accuracy of your products, so make sure to count absolutely everything instead of estimating.
If a lot of your items are boxed and it’s easy to open them, take a peek inside to check if the barcode and description match the contents; not doing so could cause issues later down the line.
What do stocktaking and business insurance have in common?
No, this isn't the start of a bad joke.
Business insurance can cover your stock for things like theft, damage from a flood or a fire and business interruption due to unexpected problems in your supply chain – all things that would seriously effect the accuracy of your inventory management.
Our flexible and customisable cover for shops and retail businesses is available from £12.95 per month and includes stock cover as well as public liability, employers' liability (if you need it) and personal accident cover.