Why and How To Do A Physical Inventory On A Shoestring Budget

By Bob Phibbs

Merchandise on the sales floor can look pretty but it is your money sitting there.

While you can do an inventory of your store any time, traditionally it is the last weekend of January or the end of July when your SKUs are potentially lowest.

Three reasons to perform a physical inventory:

Counting your stock isn’t just for insurance reasons, but a major determiner of your store's health.
You can get buy-in from your employees that, once completed, will mean less out-of stocks and having more of the best sellers.
You are also bound to find items you didn't know you even had.

I'm sharing a system I've used for counting the stock of a store because 95% of retail consists of single store operators who may not see the value in doing one.

That's because...

Counting stock and reconciling your records can seem daunting – especially if you haven’t done one for awhile or have a larger store. Or expensive if you hire an outside service. But don't let either of those stop you - you can count your stock on a shoestring budget...

See my companion post, Making Friends With Clearance

Preparation is the key!

Here’s how to do it and maintain your sanity. If you already have procedures for your shop or other type of business, check to see if you’ve addressed all the points below.

A Week Before

Price it.

Everything in the store, ideally with category number, price and date/year.

Organize.

Everything as much as possible by category.
Write out an instruction sheet that pertains to your store. For example, What is a unit.

Map it.

Take an oversize piece of paper and create a map of your store. Sketch out the location of every rack, display, wall, and shelf if necessary. Don’t forget the back room or storage area.
Beginning at the front and working counter clockwise, walk around and assign each rack, display, shelf a number; each number will represent a different section.
Number tracking sheets to correspond to the sections on your map. Your goal is to have lots of sections to make counting easier.
To speed counting, enter categories (from you POS system) onto the counting sheets with every price in the section listed. If a description could speed counting, enter it prior as well.
Have plenty of extra blank sheets for sections that have too many price points for one page or missed sections.

Arrange it.

Try to keep categories or merchandise together; you don’t want a lot of onesies and twosies or it will slow down counting dramatically.

Plan it.

Decide the date you’ll close early say 5pm. If you’ll close early, put a sign up for customers at least five days in advance. An inventory should take no more than four hours if you have enough help.

Figure it.

Write up details of how many helpers you’ll need and how you’ll pay them. Teenagers appreciate cash so I always paid out of petty cash having them sign a time card as proof with all their information.
Call your insurance agent and see if they will cover your liability for a one‐time event.

Recruit counters.

If you don't have enough staff, call your local high school counseling center and tell them you want to hire about 15 responsible kids to help with inventory.
You’ll pay them minimum wage cash and have pizza and sodas. They must call you in advance to confirm.
Get their name, cell phone and email address. Signup any that call – some won’t show and you’ll be covered.
Get plenty of pencils with erasers.

Wait.

Don’t allow yourself to start counting through the day, customer service will suffer.

The Big Night

Feed them.

Order a couple of pizzas to be delivered with soft drinks.

Track them.

As your counters arrive, check off their names.

Set the ground rules.

No horseplay, accuracy is expected, be nice to each other, if you don’t follow rules, you’ll be asked to leave.
No one will be paid until they have signed their time card and all information filled out.

Buddy ‘em up.

Pair a person who knows the store with one who doesn’t.

Instruct them.

Tell them what you are going to be doing.
Show them how to count; they are to either make tally marks or if practical, count by category and price.
All prices are at full retail, not sale prices.
Anything unpriced should be pulled, brought to the counter and counted last.
Count in pencil.

Show them.

Count one section as a group to show your process including how to count, hash marks, what the sheet should look like when turned in, etc.
They should check with you to make sure their first sheet is done correctly.

Help them.

Before they turn it in, all tally marks should be tallied into one number per line.
Assign one person the map– usually the manager to be responsible every sheet is counted.
As sheets are finished they are to put a red check on the map and the inventory sheet
If practical, the map person can tally up each sheet that night but could wait until the following morning.
Each sheet should have a total $ at the bottom by category.

Thank them.

If they did a good job, tell them you will contact them for the next time you count your merchandise.

The Next Day

Total up all sheets by category.

Enter your grand total somewhere safe

Once you have these figures, you can easily figure your open-to-buy (how much you can purchase based on what you already have in your store), shrink (the difference between what you thought you had and actually have caused by not checking invoices, sloppy transfers, mis-keyed items and theft,) and plan changes.

Without a physical count, you do not have accurate information.

Oh and if you do stock balancing to your POS - make sure you are transferring any shortages out to a dead store like #999 or in from store #999 so you have accurate tracking of the differences.