The end of Financial Year approaches and most businesses would typically be planning and organising their annual stocktake. Other companies may do one or several interim stocktakes during the year in order to better monitor their inventory and/or minimise the disruption of a full stocktake.
A stocktake is the verification of the items physically held in inventory (also called stock). Both the quantity and the condition of each item are checked. The purpose of a stocktake is to confirm that the real physical inventory of a company reconciles with the theoretical inventory held in the accounts.
The objectives of a stocktake are multiple:
- To remove the items that are broken, damaged or that have become obsolete;
- To learn of items that are no longer there;
- To provide valuable information on slow moving items;
- Last but not least, to reduce your taxable profit via inventory write-offs.
You would not want to pay taxes on a profit you did not make, would you?
Inevitably, a stocktake will end up with a list of discrepancies: Items unaccounted for, missing or that reduced in volume, density, quality, etc. Even the best companies with well implemented inventory procedures will have discrepancies: It is human nature or should I say it is “business nature”.
The steps to a successful stocktake are:
a) Determine and inform your clients of the precise time at which the stocktake will take place, as you will not deliver goods on those days;
b) Inform your suppliers of the precise time at which the stocktake will take place as you want to minimise the quantity of goods during the process;
c) Alternatively, you may organise a separate area to temporarily store all deliveries from suppliers while the stocktake is taking place;
d) Count and check every single item in inventory, not yet invoiced to a client: Label, Quantity, Weight, Volume, Density, Quality, Expiry date;
e) Do not forget to count consignment stock, if any;
f) Check the physical count against the accounting records and physically check the major variances;
g) If needed, update the records in the accounting software.
Larger companies using an ERP system would typically do regular stocktakes (usually monthly), without stopping production and logistics. The ERP would generate a list of items to be checked and these companies would follow the above steps d) to g) only. As inbound and outbound flows of goods are not stopped, there is no need to advise the clients and suppliers.
The higher the inventory level, the more important the stocktake will be. As said earlier, there will most probably be discrepancies and the business needs to address them.
Eric de Diesbach