Proper inventory management is a key component of success for small businesses. If you don’t have accurate inventory totals, you’ll have a harder time trying to replenish stock, prevent shrinkage, keep customers happy, and increase revenue.

But how do you know when—and how often—you should perform inventory counts for your retail store?

According to The Retail Doctor, you can do an inventory of your store any time, but traditionally the last weekend of January and the end of July are when your SKUs will potentially be the lowest, so those are good times to plan for a count.

Below you’ll find 4 suggestions on when to conduct inventory counts. It’s up to you to choose the one that best fits your company’s needs. The important thing is that you actually do it!

Full Physical Count

A full physical inventory involves counting all of your company’s inventory at once. Many businesses typically do this at the end of the year as it coincides with their accounting reports and filing income tax.

Physical inventory counts provide accurate data, identifying differences between what is currently in stock and what is reflected in the accounting system. When differences are identified, they can then be adjusted accordingly to make the books match the physical counts.

When—and how often—you conduct full physical inventory counts depends on you. But whatever you decide, you’ll want to prepare well in advance. Select a future date and make sure your employees and regular customers know when it’s coming up.

If possible, schedule your inventory count after business hours. It that won’t work, you’ll need to close your store for a day or at least a block of several hours. Additionally, you should post a sign outside your store, or at the checkout counter, detailing your upcoming inventory plans.

Cycle Count

Instead of conducting a full physical count at the end of the year, you can audit your inventory throughout the year in what’s referred to as cycle counting, or the practice of doing partial counts on a continuous basis.

Considered one of the most efficient inventory counting methods for retailers, cycle counts allow you to count inventory without interrupting business hours. Additionally, cycle counts can be performed on a daily, weekly, or monthly basis by counting a different product on a rotating schedule. In general, you’ll want to count items of higher value or volume more frequently.

One cycle counting method is based on geographical location, such as starting at one area of your store, warehouse or storeroom and proceeding systematically to the next area so that by the end of the year the entire room has been counted at least once.

Another common cycle counting method is to prioritize your products with an A-B-C system. For example, suggests Chron, category A might include products that turn over at least 5 times a year, while category B would include items that turnover 2 and 5 times, and category C would include items that turnover less than 2 times a year. Based on this formula, you might decide that items in category A should be counted 12 times a year, while category B products are to be counted 4 times a year, and items in category C should be counted only once a year.

There is also a third type of cycle counting referred to as random sample counting. If your store has a large quantity of similar products, for example, you could randomly select a certain number of items to be counted. This count can be conducted each workday, making it possible for a large percentage of products to be counted in a reasonable period of time. You could either count the same number of items each time an inventory count is performed or choose to count a number of items that once counted are then excluded from being counted again until the rest of the items in the store (or storeroom) have been counted.

Periodic Count

This method of inventory counting is closely related to cycle counting, although it is more systematic. The periodic system is the practice of performing an occasional physical count of the inventory to determine the ending inventory balance and the cost of goods sold,

You might perform complete periodic counts every three or six months, for example, in order to verify the accuracy of your cycle counting instead of just relying on spot checks of commonly lost items. Periodic counts can significantly improve the accuracy of cycle-counting.

Seasonal Count

The seasonal inventory method can be either spot check counts or complete counts. This inventory count revolves around changing seasons and trends or product spoilage.

For example, fashion retailers might perform a complete or partial product count near the end of a season to verify that they have sold all of their seasonal items before new merchandise is stocked in its place. Or, a business selling perishable goods might perform a seasonal count to ensure that they aren’t selling expired goods that could potentially harm customers.

Conclusion

As of, 2015, The Retail Doctor indicated that 95% of retail consisted of single store operators who didn’t see the value in doing physical inventory counts.

That’s a mistake.

Paying attention to the stock you have on paper vs. what’s actually in-store will help you maintain inventory accuracy and identify causes of shrinkage, as well as ensuring that you have the products in stock to meet customer demands. Overall, accurate inventory management is an indicator of your store’s health, influencing your potential to increase revenue and forecast the future.

About Author

Sherene Funk

Sherene Funk is a voracious reader who owns more books than she can ever read in this lifetime (but that doesn't stop her from collecting more). A graduate of Brigham Young University, she has published several humorous non-fiction articles and worked in advertising for many years before moving to her current position as a writer on modern retailing at Rain Retail Software.

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