Every retail operation is required to do physical inventory at least once a year. Many stores even elect to do physical inventory multiple times throughout the year, or count select departments or items on a regular basis. Whatever your timing may be, here are a few best practices to follow to help ensure success.
Although most stores have invested in POS inventory control software with physical inventory features and hardware scanning devices, the process still requires people to perform the counting of the on hand items. People perform their best when they understand why the task they are to perform is important. Be sure to explain to everyone who will be participating in physical inventory why having an accurate on hand count of each item is needed. It may also be most productive to divide the counting by departments, and assign individuals to specific departments to count. This enables the counting of multiple departments in parallel, and should help move the entire process along faster. Be sure to schedule the event well in advance so everyone is available for the task.
Inventory represents a current asset the store expects to sell within one year, however the reasons for doing physical inventory are not limited to just tax or accounting purposes. An accurate on hand count ensures that buying decisions are based on accurate data. Wrong on hand quantities lead to misinformed buying decisions, which negatively impact your retail business. Order recommendations or buying reports can only be accurate if on hand quantities are correct and costly buying mistakes can be avoided. The goal of any retail operation is to strike an optimum balance of inventory so that excess dollars are not tied up unnecessarily, yet sales are not lost due to out of stock merchandise. Getting this balancing act correct certainly begins with an accurate count.
Retailers not only need to effectively manage their inventory, but also purchase inventory that will result in the greatest profitability for the store. It’s a highly recommended practice to perform counts of high volume and high value items on a regular basis. High volume items are particularly vulnerable to error due to the high number of transactions. It’s much easier to identify an inaccuracy in inventory if the discrepancy is caught within 30 or 60 days, rather than combing through months of data to reconcile an item which was last counted a year ago.
One final best practice is to run an inventory report before and after conducting inventory to get an accurate idea of the value of the inventory you were supposed to have vs. what you actually have.