Not Inventory Time Already
In my last article, I discussed the importance of performing a physical inventory at least once a year. I also reviewed some of the things you need to think about to get the best possible results.
We talked about knowing where the inventory to be counted was located, who would be counting the inventory and how well equipped they were to perform the count.
Lastly, we discussed using technology to make the count easier.
Here, we'll complete the circle of inventory, so to speak, and talk about when to conduct the inventory, how you can be certain it is complete and what accounting entries, if any, you'll need to make it all happen.
When to do Inventory?
Closed for inventory
In an ideal world, you'd close the store while you're taking inventory. That way, you can freeze the inventory and ensure no pesky customers want to buy something while you're in the middle of counting.
The question is, "Can you afford to close the store for the time it will take?" If you can afford it, then by all means, do so.
This also plays into the technology you use. If your system supports scanning to perform your inventory, most times an inventory of a single location of about 1,000 different items (SKUs) can be done in six to eight hours. Or, at the very least, you can close the store early, count, and then finish before the next business day.
If you have a large number of SKUs, this might not be reasonable, which means you might have to close for a day or so.
I remember switching over one of our clients from a manual system. It took two complete days to get everything counted. But that's an extreme example, and her customers looking to get Fido his food weren't real happy.
A lot of systems allow you to freeze the inventory and still take sales and receive inventory. In this case, the system will provide an indication of what changed, and either automatically make changes based on system changes to inventory or allow you to make the adjustments manually.
While it's great when the system provides this capability, I still think the best inventories are done when the store is closed.
counted
Knowing When You're Finished
How will you know you're done? Remember, we talked about making a list of everywhere you have inventory. While making the list, divide up the locations by zones and assign one person to count a zone.
Once that zone is counted, put a sticky note by it.
As a side note, sticky notes (and sticky dots) are pure genius, so make lots of use of them.
If you want to make absolutely certain, mark each label with a small dot or another indication (like a sticky dot) that the item has been counted.
Once all of the zones are completed, randomly spot check a few items (up to a dozen or so) to make sure they've been counted.
What about the Accounting?
So you've completed your inventory – now what?
$-sign
If your POS system is connected to your accounting system, it should make the appropriate entries for you.
For example, with QuickBooks POS desktop, by default, the entry is posted to an expense called the "POS Adjustment Expense."
I'd recommend you look at that account and make an entry to move the dollar amount out of the POS Adjustment Expense and into a Shrinkage account.
My concern with using the generic account is that all inventory adjustments, whether damaged or loss to theft, etc., will end up in that account. And it won't tell you there's a problem.
I also encourage you to run the inventory report in your POS system to see if the cost ties out to the inventory account on the balance sheet.
Just a hint, it should.
If the two systems don’t talk to each other, you'll need to post the adjustment to inventory manually so that the two systems agree.
If you follow these common sense rules, you can make sure the time and money you spend on doing a physical inventory are not wasted.
Retail in particular is all about managing inventory. Get it right, and you can be the next Costco or Walmart.
But get it wrong, and you'll find yourself in a world of hurt.
William "Will" English is president of English Management Solutions Inc. in San Diego. Will’s company has been serving clients across the United States, including Hawaii, since 2002. He was one of the first employees Intuit hired when they released the first version of QuickBooks, then a DOS based product.