10 commandments of a stress-free stocktake

If your business produces or purchases stock for the market, you will likely need to do at least one stocktake at the end of the financial year for tax reasons.

“You should do your stocktake as close to the end of the financial year as practical,” Australian Taxation Office assistant commissioner Michael Ingersoll advises.

The only businesses exempt are those with a turnover of less than $2 million and trading stock that has changed in value by less than $5,000 throughout the year.

“If you choose not to stocktake, your records should still include what you estimated your stock variation to be and how you arrived at your estimate,” says Ingersoll.

1. The basics

“Your opening and closing trading stock value is reported in your income tax return and is used when calculating your taxable income,” says Ingersoll.

In a stocktake, you must count each item of your trading stock, and make a “reasonable estimate” of the items’ value, using cost price, market value, or replacement value at financial years’ beginning and close.

You also need to update your stock and financial records post-stocktake, describing each article of stock, its value, who valued the stock, and the basis of the valuation.

So the more stock you have, the more difficult and time-consuming a stocktake can be.

If you don’t have it already, consider investing in some stocktaking software. Many point-of-sale programs do have stocktake software built-in, but some are better than others, so make sure it suits your purposes.

2. Prepare thyself (and thy staff)

Have your stocktaking supplies ready to go. Make sure you have enough chairs, pens, clipboards, barcode scanners, and stock lists, and that staff have been briefed on the procedure.

“It’s often better to bring in extra staff for stocktaking,” Australian Retailers Association executive director Russell Zimmerman advises. “It’s a lot more efficient and means less pain and stress for everyone.”

3. Know where everything is

“Stocktaking is a lot easier if everything is neat, tidy and labelled properly,” says Edi Sarti of the Stocktakers Institute of Australia.

Sort your inventory into groups so that similar items – such as those in the same range – are together. Also make sure you know where everything is.

“Have a list of what stock is in what location, such as what is floor stock, what’s in the storeroom, and if you have any stock off-site,” advised Small Business Institute director Anthony Turner.

Ingersoll advises identifying damaged, expired, and missing stock to remove it before the count. Also, identify consigned stock and stock that has been sold but not dispatched, and keep these separate from your inventory.

4. No interruptions

Make sure your stock levels do not alter during your stocktaking. While you don’t want stocktake to cost your business, it’s best to shut up shop for a stocktake if you possibly can.

“Arrange stocktake for a quiet time, outside business hours if possible,” advises Ingersoll.

If your business is open seven days a week and stocktaking after-hours isn’t an option, Turner recommends closing your store for a day or two when business is quiet so you can get your stocktaking done.

5. Happy staff, happy stocktake

“Try and make the stocktaking experience as much as possible,” says Turner. “Have everyone wear comfortable, casual clothes and shoes and have a bit of a laugh together.”

Allow people to sit while counting, if practical, and Turner advises ensuring the team takes regular breaks.

“You’ll have a more accurate stocktake if everyone is comfortable. And my staff always appreciates coffee and pizza.”

6. Count everything

Physically count each item. Do not assume current inventory data is correct; only a full stocktake will tell you what is on hand.

Also be sure to check stockrooms and other storage areas for items that may have been forgotten about in the hustle-and-bustle of normal business hours.

“Don’t forget manufacturers’ returns, items reserved for customers in hold cupboards, and products which have been sold on lay-by,” Zimmerman says. “These all need to be checked in your count.”

7. Double-check

If you have a large amount of stock, it’s a good idea to do a double-count. A double-count becomes a necessity when there is a discrepancy between pre-stocktake records and the results of the physical count.

8. Know where you’re up to

Have each staff member use a different coloured pen to mark off what they’ve counted to prevent accidental double-counts. Mark items off again if they’ve been double-checked.

9. Missing items

“Missing items often show up in another box during the stocktake, so don’t panic,” says Turner. “If it’s not found during the stocktake, check your records to see if the missing items might have been stored elsewhere, including off-site.”

“Overall, about three per cent of retail turnover is in theft,” says Zimmerman.

Indeed, in 2014-15 Australian businesses lost $2.7 billion due to theft.

“Small, expensive items that can easily be concealed like necklaces, batteries and cosmetics are often targeted,” says Zimmerman. “Stocktaking year-round helps identify retail shrink.”

10. Spot checks

“It’s a good idea to do at least a partial stocktake on regular basis to see how the results line up with your purchases and overall profitability,” says Sarti.

Ingersoll advises that a stocktake can “fine-tune your stock ordering and control practices and reduce stock levels and improve cash flow.”

Stock spot checks can uncover items businesses weren’t aware they had on hand, products that weren’t entered into the system properly upon arrival, and which items haven’t been selling well.