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How to Survive the Year-End Inventory Count

by Madison Crader
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’Tis the season. No, not that one. It’s the season when businesses make their lists and check them twice for the dreaded year-end inventory count. This piece of inventory management is crucial, but it often ends up feeling like a grueling annual marathon.

Taking steps throughout the year to manage your inventory and prepare for the count can make this herculean task a little less daunting.

Whether you’ve got a small retail storefront with a tiny stockroom or a large enterprise with multiple warehouses, there are some steps you can take to make the annual tally a little less painful. We’ve compiled some questions and tips to help you breeze through your inventory count and get back to the real priority: positioning your business for growth in the New Year.

What is a year-end inventory count?

First things first, let’s make sure we’re on the same page. A year-end inventory count is a physical inventory count of retail products or sales inventory. Although some businesses need to include other supplies for accounting purposes or tax reporting, traditional annual inventory counts focus on products for sale or stocked in a warehouse. But what does and doesn’t count as a product can get tricky, especially if your manufacturing floor is littered with half-assembled items that are mid-production.

Why count your inventory?

There are lots of reasons to tally up your products, assets and supplies. Here’s a quick snapshot of the most popular reasons businesses conduct year-end inventories.

  • To accurately report assets for tax, insurance or financial purposes
  • To reassess ordering practices and supplies
  • To reorganize stock and conserve space
  • To discourage theft or carelessness

The goal is to make sure that whatever product is on the warehouse floor, in the stockroom or on the store shelf matches what you have on paper or in your inventory management software.

What inventory should you count?

Your purposes for conducting a year-end inventory count will largely determine what you’re interested in counting. Naturally, products and items sold to a customer are the first order of business in an inventory count. But there are other assets you may need to account for as well, including equipment, maintenance items and supplies that can be spread out across multiple sites. If you’re confused about what does and doesn’t count as product, check the following list of frequently included inventory items.

  • Product: If it can be sold to a customer, count it as inventory.
  • Maintenance supplies: These items don’t become part of the product, but they help keep your facility, store or equipment running.
  • Materials: Items counts as materials if they’ll become part of your finished product but haven’t yet been used in the manufacturing process.
  • Equipment: It may be necessary to count furniture, appliances, vehicles and electronics, especially if you’re conducting a count for insurance purposes.

Where are you going to count?

For smaller businesses, this question is easy to answer, but larger enterprises with multiple sites will find conducting a year-end inventory count a little trickier. While you don’t have to count everything in your facilities at the same time, make sure you have a plan that accounts for all your sites. Double-check that you’ve included mobile locations like service trucks or even the stock in the trunk of a salesperson’s car.

When are you going to count?

Conducting an inventory count during normal operating hours is a recipe for disaster that should be avoided at all costs. Estimate how long you think conducting the inventory count will take by first staging a small-scale count then multiplying it by the remaining areas in your facility. Once you know how long you’ll need, schedule your count during off-hours.

Who is going to be doing the counting?

Once you’ve decided how long it will take and how many people you’ll need to perform the count, staff up accordingly. Form inventory-count teams of two people and assign each team an area with specifically marked perimeters to eliminate ambiguity or overlap between teams. You can also hire third-party vendors to conduct your inventory count.

Preparing for year-end inventory count

As the date you’ve set for your annual inventory count approaches, performing the following tasks will ensure that your count teams are efficient and accurate.

  • Provide count tags. Using formal count tags allows you to identify and categorize items. Tags should identify bin location, quantity, unit, part number and more.
  • Clean up your inventory. Cut down on clutter, move product within reach, label everything and box items together so it’s easy to scan the space visually.
  • Pre-count as much as possible. Get a head start on bulk items and supplies.
  • Notify all locations. Everyone should be on the same page about what is happening and what they’ll need to do.
  • Freeze warehouse activity. If possible, halt activity before the count so you can avoid an influx of products or supplies. Reducing items in limbo will help increase count accuracy.
  • Train count teams. Walk your teams through how to use the tags, answer questions, and provide a map of the count areas.
  • Offer food and drink. It might be a long day (or night), and your teams are likely to need a little refreshment and some extra gratitude.

Once the day has arrived, you should be able to execute your inventory count with minimal hassle. When the count is complete, verify your tags and do data entry as soon as possible. Flag any tags that look unusual so you can investigate and verify the results.

Tips for better inventory management

Getting through this year’s annual inventory count may be top of mind, but it’s worthwhile to consider how to better manage your inventory year-round.

1. Use inventory management software. Efficient and accurate inventory management doesn’t just mean less hassle for annual counts. It’s also critical to prevent costly stocking errors and cut down on how much space you need in your warehouse or stockroom. Investing in inventory management software can also lead to better customer service by reducing empty shelves, back-ordered products and shipping delays.

2. Next time try cycle-counting. It’s not always the best method for every situation, but cycle counting throughout the year can alleviate the need for an end-of-year count. Cycle counting involves taking a section of the store or warehouse at a time and conducting periodic audits. It’s a popular method among smaller retailers who don’t have large inventories that fluctuate dramatically.

3. Get an inventory scanner. This may seem obvious, but if you’re not using inventory scanners, you should be. If you have a point-of-sale system, check to see if they also offer an inventory scanner or scanner app. Because it automatically loads all product information, scanners can eliminate the added work of duplicating this information manually.

4. Create inventory reports. Now that you have data, leverage it to learn more about your business and your customers. Analyzing how your inventory changes over time can help you spot seasonal trends and identify new verticals or areas of growth. Look for patterns that pinpoint problems within the business that deserve more of your attention.

5. Reconcile and address any discrepancies. Shrinkage occurs when your inventory count is lower than what you have recorded, which will ultimately shrink profit, and it can be caused by many things. Simple human error or botched paperwork is the most likely culprit, so double-check your documentation and do the math carefully. If you’re still missing product, tighten up your processes and try to identify the source of the discrepancy. Fixing mistakes now can ensure that you won’t have to deal with the same difficulties next year.

Each year, when you conduct a year-end inventory account, you’ll have a chance to hone and refine your procedures. Take notes on what went well this year, what was challenging and what could use a little tweaking. When you start planning for next year, you’ll be able to leverage what you’ve already learned. The goal is to work smarter, not harder, because the old cliché is right: In any industry and for any size business, time is money.

About the Author
Madison Crader specializes in creating content related to small businesses, from building brand awareness to gaining access to growth capital. She has a passion for helping entrepreneurs understand their financial needs and set long-term goals.