23 November, 2023

How To Do Year-End Inventory Count

As the end of the year approaches, it’s time to start preparing your business for end-of-the-calendar-year tasks. And while some businesses do their physical annual inventory count mid-year, many do their year-end inventory count in December.

That year-end physical inventory count might be larger than you expect. According to the U.S. Census in July 2023, the average business was sitting on $1.39 in inventory for every dollar in sales they made. This is a 1.4% increase from the same period in 2022.

Annual inventories ensure your business knows how much of each product it has on hand for day-to-day operations and gives you information for your forecasting and demand planning. Plus, for some businesses, annual inventories are required by the IRS as part of ensuring an accurate inventory valuation.

What is a year-end inventory count?

Your annual inventory count is the physical count of all inventory you have at the end of the fiscal year. In addition to keeping track of your stock with inventory management software, a physical count at least once a year ensures that your inventory is accurate.

Even with honest record-keeping, adjustments are often needed. For example, damaged items might be found during the count.

These inventory counts also play an important role in your accounting department. You can use your year-end inventory to figure your ending inventory value, which is used in figuring yearly gross income, Cost of Goods Sold (COGS), and filing taxes.

Despite this importance, the final totals shown on your financial statements will vary depending on the type of inventory system you follow, such as FIFO (first in, first out), LIFO (last in, first out), or Just-in-Time. 

If your company uses the LIFO method, your inventory values may seem lower since you’re assuming your newest (and usually most expensive) inventory is selling first.

Aside from figuring out how much of a particular item you have in stock, what’s the benefit of completing a year-end inventory count?

Why should I do a year-end annual inventory count?

Your annual inventory count serves several purposes. First of all, annual counts help you run your business efficiently. When you figure out your ending inventory, you can then calculate your COGS. With this information, you can make adjustments to your sales prices to make sure you stay in the black.

With your inventory count done, you’ll also be able to better understand the performance of your inventory. It helps you see which items are selling well, and which ones are not moving as quickly.

Using this information, you’ll be able to make more informed, data-based decisions. You can then make purchases that are necessary instead of just going along with what your suppliers recommend. This count also helps you adjust periodic automatic replenishment (PAR) levels for top-selling products. With Cin7’s Connected Inventory Performance (CIP), your data is always available. CIP visualizes your inventory data, tracks every event, and automates critical steps to keep the lifecycle moving.

Your annual count also helps ensure accurate inventory counts. It’s possible during the course of business that some of your inventory went missing, was stolen, damaged, or decreased in value. This is the time you can make adjustments to your inventory, adjust processes to avoid inventory damage, and change security measures if needed to be ready for the next year.

How to do year-end inventory?

Your inventory count could take a few hours or a few days, depending on the amount of inventory you have, the amount of staff you can devote to the count, and the tools you use. The following steps will help you complete your year-end annual inventory count efficiently.

Plan ahead

Schedule your inventory count for when it will cause the least disruption. Make sure you schedule enough staff or consider hiring temporary staff to help with the process.

Many small businesses conduct their end-of-year inventory count on a day they’re not open to customers, giving them plenty of time to focus on the task at hand. It’s good to prepare your staff ahead of time with extra training too.

Get organized

Split your staff into groups, with each counting team tackling a different section of your warehouse. This way your teams don’t get in the way of each other.

Make sure everyone knows what they need to do before they get started, including what areas they must count, who they should confirm information with, which inventory records they’re responsible for, and how they should reconcile any inventory reporting data.

Work in teams

The physical inventory process can be full of human error. To reduce this, have staff work together in teams, with each member responsible for a different part of the process.

For example, for each team, one person should physically count items, and another should write down important information about the stock count and location of the inventory.

Cross-check for accuracy

Next, you’ll need to check your actual inventory against your projected inventory and your beginning inventory records.

It’s not uncommon for there to be some differences in the counts, but large discrepancies may require recounting and analysis to find out what went wrong.

Have the right tools

Completing your annual inventory count will go a lot faster with the right tools to help you out.

This includes physical items, like inventory tags, lists, and organized inventory, but it also includes the software you work with. With connected inventory performance from Cin7, you can keep track of your inventory regardless of which channel it’s sold on, so your inventory software more accurately represents your physical count.

If you’re relying on sticky notes and Excel sheets for your physical inventory count, you’ll spend much longer trying to track everything compared to using barcodes and inventory software.

Steps to take after completing your annual inventory count

Getting your year-end annual inventory count done is only the first step. You also need to use the data to help create your new inventory goals and refine your processes.

Put data into action with forecasting

The data you collect during the annual inventory will help you make forecasts so you can plan ahead for the new year. You may need to order more inventory, adjust inventory values, or make changes to how you value your inventory, depending on your demand planning forecasts.

Check for shrinkage

Inventory shrinkage, when your inventory decreases due to theft, spoilage, or any event other than a sale, has become a big problem in recent years. The National Retail Federation found the average shrink rate in 2022 increased to 1.6%, representing roughly $112 billion in losses for retailers.

Reduce unnecessary inventory

Your running inventory total helps you keep an eye on how much stock you have in total during the year. But if your annual inventory reveals that the cost or physical space is becoming too much, you may need to reduce your inventory

You may find it useful to:

  • Evaluate if your inventory valuation method is the right fit or if you need to change systems
  • Complete a more detailed demand forecast to reduce overordering
  • Automate your restocking
  • Invest in inventory management software

Rethink how you do inventory

If you found the process more complex than you thought it would be, it might be how you’re managing your inventory. When you use an intelligent inventory management system like Cin7, you start off your annual inventory count with more accurate data, helping reduce the time and money it takes to complete the process.

When you use Cin7 you’ll be able to:

  • Access your data at any time and place
  • Set up your inventory quickly, easily, and just the way you like it
  • Use ready-to-scan barcodes compatible with your phone’s camera
  • Customize and allow access to teams, vendors, and suppliers
  • Generate custom barcodes for unlabeled stock
  • Create data-rich, shareable reports to help you understand your inventory
  • Get alerts when you’re running low on a product, if products are about to expire, or if a product is nearing warranty expiration
  • Create product histories to answer who, what, and when details customers want to know

Final thoughts: Year-end annual inventory and how to do it

While conducting your inventory accounting is a time-consuming task, with a bit of planning it doesn’t have to be so disruptive.

Using an inventory management software solution like Cin7 will take a lot of the guesswork out for your staff, helping them know where to find items, and how many they should expect to see at any given time. The real-time reporting will give a more accurate account of your inventory during the year as well.

If you’re tired of missing inventory or spending long hours reconciling different inventory counts, start your free trial today and see how you can scale your business with Cin7.


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