How to do a stocktake

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    Rachel Wait

    Page written by Rachel Wait. Last reviewed on May 23, 2024. Next review due July 1, 2025.

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      Controlling your stock is important if you want to be sure you’re accurately measuring efficiency and performance. This guide covers all you need to know about how to do a stocktake.

      What is a stocktake?

      A stocktake is the process of counting and recording the amount and value of stock a business currently has. 

      It’s best to carry out a stocktake at regular intervals, say every month, so that you can keep track of how much stock you have. You can choose to carry out your stocktake manually or with the help of technology, but the aim is to get an accurate count of everything. 

      What is the purpose of stocktake?

      Stocktaking serves as a fundamental practice for businesses to maintain control and accuracy over their inventory management processes. It involves the counting and recording of goods held in stock at a particular point in time

      One of the primary purposes of stocktake is to uphold accuracy in inventory records. By verifying the physical presence of items against recorded quantities, businesses can easily identify any inconsistencies. This accuracy is key for efficient operations, as it helps prevent stockouts, overstock situations, and errors in financial reporting

      Additionally, stocktake assists businesses in identify slow-moving or outdated items in their inventory. By recognising these products, businesses can take corrective actions such as discounting, liquidating, or discontinuing them, thereby freeing up capital and warehouse space

      Furthermore, the process of stocktaking provides an opportunity for businesses to evaluate and improve their inventory management processes. By analysing inefficiencies, and operational challenges, businesses can implement changes to optimise operations, reduce errors, and improve overall efficiency.

      Why are stocktakes important?

      Stocktakes are important because they help with your stock control. If you’re a business that sells food, for example, you will need to know when items are due to go out of date so that you can take them off the shelves and restock them with fresh products. A stocktake can also be used to:

      • Help determine the cost of goods sold
      • Reduce overstocking on items you don’t need
      • Ensure you have enough of a certain product to meet demand
      • Assess whether your ordering process is efficient 
      • Identify any missing or damaged items. 

      Regular stocktakes will also show you how much of your cash is tied up in stock and help you maintain a good cash flow.

      What are the cost of stocktake

      The costs of stocktaking generally include three main areas: labor, technology, and materials.
      Labor costs involve paying employees to count the inventory items, which can vary depending on factors like the size of the inventory and the complexity of the counting process.

      Technology expenses may include investments in inventory management systems, barcode scanners, or software designed to make stocktaking process easier. These technologies can improve accuracy and efficiency but often come with high setup costs as well as ongoing maintenance fees.

      Furthermore, there are expenses related to materials and supplies needed for stocktaking, such as count sheets, labels, and other necessary items. While these costs might seem minor individually, they can add up, especially for businesses with large inventories.

      What records do I need to keep during a stocktake?

      When you carry out a stocktake, you’ll need to have a method of recording the goods you buy and sell. You could do this manually with the help of a spreadsheet, or you could use accounting software. 

      Which option you choose might depend on how many lines of stock you have and whether you make products from items you buy. For example, if you only sell a few products, you might find a simple spreadsheet is all you need. On the other hand, if you buy various different ingredients and supplies to run your cake business, you might need a more complex stock system.

      Stocktake checklist

      Set a date and time for the stocktake

      Your first step is to decide on the time and date for your stocktake. It’s best to do this when things are quiet so that you don’t get distracted. Consider whether you want to shut your business for a day to enable you to do this, or whether you can do it after hours. 

      Also think about whether you want to carry out a stocktake monthly, quarterly, half-yearly or annually. 

      Ensure your stock records are maintained and printed before the count starts

      Before you start your stocktake, it’s important to check you have the most up-to-date stock records to hand. These are used to record your new count against what should be there. Many software packages let you print out your stock sheets easily, but make sure you use them in the right order. You’ll need to count what you have on the shelves first, before noting it down against what your system says is there.  

      Count all physical items of stock 

      Your next step is to carry out the count itself. It can be a good idea to have a tally sheet for each inventory item and have the required tools at the ready to help you accurately count the stock. This can include clipboards, calculators and pens, or your laptop if you’re entering the results straight into your electronic stock register. 

      This won’t be a fast process so make sure you take your time and count one type of inventory item at a time. It can help to have another person with you to do their own count and ensure accuracy.

      Review the records for any anomalies and discrepancies

      Once you’ve completed your count, you need to validate your stocktake. Check the results of the count and compare it to the stock records you printed out at the start. Look for any anomalies and discrepancies as these can be serious. You might need to do a recount to work out which record is correct.

      Review your records for any reasons there may be a discrepancy

      If there are any discrepancies, you’ll need to work out why this is. It could be due to a goods received note not being processed, for example, or perhaps an item is simply in the wrong place. Other reasons could include theft, issues with your supplier or even problems with your stock control system in general.

      Once you’ve found the cause of the discrepancy, you can take steps to make sure it doesn’t happen again. This may require changes to your processes or extra security.  

      Keep an eye out for any obsolete stock that might need to be removed altogether

      It’s also important to have a procedure in place for dealing with stock that might be damaged, out of date, or no longer required. 

      Update your accounting records to show the real number of stock in hand

      Finally, once all of the above steps have been completed, you’ll need to update your inventory records. This will ensure your records are accurate and up-to-date, which is important for effective stock management. 

      Tips for completing a successful stock take

      Below are some tips to help you complete your stocktake more efficiently:

      • Use a barcode scanner: If you manually count everything, you’re far more likely to make a mistake which is why it’s worth using a barcode scanner. You’ll be able to quickly record stock levels and store the data at the same time.
      • Keep things tidy: A tidy and organised warehouse (ideally with clear labels for different items) will make it a lot easier and quicker to complete your stocktake and reduce the risk of mistakes. 
      • Get feedback from staff: It can be a good idea to ask staff who were involved in the stocktake how well they felt it went and what could be improved for next time.
      • Use dedicated software: Using an electronic stock management system can make the process of carrying out a stocktake much easier and save a lot of time. It can help you to see stock levels updating in real-time and, when combined with tools like barcode scanners, you’ll be close to automating the whole process. 

      How often should I count stock?

      Determining how often to count stock depends on various factors such as the nature of your business, the size of your inventory, and your inventory management system.

      It’s generally recommended to count stock regularly to maintain accuracy and prevent inconsistencies. For some businesses, a daily or weekly counting schedule might be necessary, particularly for high-value items or those in risk of theft or damage. Others may find that monthly or quarterly counts is sufficient, while some industries with slower-moving inventory may go for semi-annual or annual counts.

      Ultimately, the frequency of stock counts should be based on your specific needs, making sure that you strike a balance between maintaining accuracy and minimising operational disruptions.

      What are the consequences of too much inventory?

      Too much inventory can lead to various consequences for businesses:

      Increased holding costs

      Too much inventory ties up capital and storage space, leading to higher holding costs such as storage fees, insurance, and depreciation.

      Cash flow issues

      Overflow of inventory represents capital that is tied up and not generating returns. This can negatively affect cash flow and limit the ability to invest in other areas of the business.

      Decreased profit margins

      Too much inventory can lead to a reduction in sales to liquidate excess stock, reducing profit margins and minimise profitability.

      Increased order fulfilment complexity

      Managing a large inventory requires more resources and time to track, locate, and fulfil orders accurately, potentially leading to operational inefficiencies and errors.

      Decreased flexibility

      Overflow of inventory can limit the ability to adapt to changes in demand or market conditions, making it difficult to respond quickly to changes in consumer preferences or unexpected events.

      What are the advantages of stocktake?

      Stocktaking offers several advantages for businesses, some include:

      Inventory accuracy

      Stocktaking helps to make sure that the recorded inventory levels match the actual quantities present in the warehouse. This accuracy is key for efficient operations and preventing stockouts or overstock situations.

      Loss prevention

      Regular stocktakes can help identify differences between recorded and actual inventory levels, which may indicate theft, damage, or other losses. Identifying these diffences earlier can prevent further losses and improve security measures.

      Financial reporting accuracy

      Accurate inventory records are essential for financial reporting purposes, including balance sheets and income statements. Stocktaking helps to make sure that inventory valuations are correct, which is vital for assessing profitability and financial health.

      Optimised ordering

      By knowing exactly what items are in stock and their quantities, businesses can make more informed decisions about when to reorder and how much to order. This can prevent excess inventory buildup and reduce carrying costs.

      Customer satisfaction

      Accurate inventory levels help to make sure that customers can find the products they need when they need them, leading to improved customer satisfaction and retention.

      What is the difference between a stocktake and inventory management?

      The difference between a stocktake and inventory management lies in their purpose within the broader context of inventory control

      Stocktake refers specifically to the physical counting and recording of goods or items in inventory at a particular point in time. It involves verifying the accuracy of inventory records by comparing recorded levels with the actual quantities on hand

      On the other hand, inventory management includes a broader set of activities and processes aimed at effectively controlling and optimising the flow of goods throughout the supply chain. It involves planning, organising, and overseeing all aspects of inventory, including storage, tracking, and distribution. Inventory management aims to keep a balance between maintaining sufficient stock levels to meet customer demand while minimising costs and inventory-related risks.

      Can I outsource my stocktake?

      Yes, you can outsource your stocktake.

      By partnering with a specialised third-party service provider it allows you to delegate physical counts. This approach provides benefits like access to expertise, increased efficiency, and reduced internal workload. Outsourcing guarantees accuracy through fresh perspectives and independent verification. However, choose service providers wisely based on experience, reputation, and cost-effectiveness. Ultimately, outsourcing optimises operations, improves accuracy, and lets your team focus on core business activities.

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      Written by

      Rachel Wait

      Rachel has been writing about finance and consumer affairs for over a decade, helping people to get to grips with their finances and cut through the jargon. She's written for a range of websites and national newspapers including MoneySuperMarket, Money to the Masses, Forbes UK, and Mail on Sunday. Rachel has covered almost every financial topic, from car insurance and credit cards, to business bank accounts and mortgages.

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