It's Not Inventory Time Again Already Is It?

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In the life of every retailer, taking a physical inventory is one of those unavoidable things you should do at least once a year. But like someone who has a toothache and puts off going to the dentist, I’ve heard just about every excuse for not taking a physical inventory.  

"I have too much stuff." "I don't have very much stuff." "My dog ate my homework (oh wait, that’s a different excuse)."

Unless retailers commit to doing a physical inventory at least once a year, they risk paying too much in taxes, or worse, not being able to withstand an audit, since the Cost of Goods Sold are directly tied to your inventory asset value and sales.

So, once you've decided to do an inventory, what’s next? In this miniseries, we want to help prepare you for the physical inventory process.

First and foremost, the most important thing is to properly plan how to do your physical inventory.  

I've seen too many retailers try to wing it and end up with incorrectly counted inventory.  It's almost better not to have done inventory at all than to do it incorrectly.

  1. How many locations are you counting?
  2. Is the inventory you’re counting bar-coded, and do you have the systems in place to use the barcodes to count?
  3. How comfortable is the staff with your inventory and where it is located?
  4. Will/can you close the store while you take your inventory?
  5. How will you know when you’re done?
  6. What accounting adjustments will you need to make, if any?

In this first installment of our miniseries, let's look at the first three (in order):

How many locations do you have inventory?  

I'm not talking about just physical stores. What about the storage unit you rented to keep seasonal merchandise?  

We've been in several retailers that use the bathroom to store stock? (yikes)

Make sure you go through the store (or stores) and open every drawer and cabinet, storage closet, etc. Make a list of every place you find inventory, and then check it again.

Is your inventory bar-coded?  

A number of the better Point of Sale Systems provide the ability to take a physical inventory using either a barcode scanner or physical inventory scanner (a special device designed specifically for that purpose). 

It's far faster and more accurate to scan barcodes into a system than it is to print a list and write everything down. Once it is all written down, start keying in changes to the inventory counts in your software.

Even if your point-of-sale, inventory or accounting system doesn't incorporate barcode scanning for inventory purposes, there are relatively inexpensive third party add-on systems that allow you to assign corresponding barcodes to your inventory SKU/part numbers, scan inventory quantities, and then import adjustments into your software.

How comfortable is your staff with the inventory?

If you're considering hiring an outside service, make sure you meet with them beforehand to get a proper scope of your requirements.

Will they be using their own equipment? If so, how will they give you the inventory information? In a spreadsheet? A report? If so, can you import the changes into your system. 

If you'll be doing the count with in-house staff, consider the skill set of your employees.

That perfect salesperson – the one who has exceptional people skills – may lack the focus and attention to detail that's needed to properly count.

In our next article, we’ll cover the points four thru six in the above list, and also offer suggestions to ensure you have the best outcome possible.

If you’ve gained anything from my articles, it's that retailers must have a laser focus on inventory. It's the largest purchase and the biggest area where retailers get into trouble.

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.