How to do a stocktake: full counts, cycle counts and variances

What is a stocktake and why does it matter?

A stocktake is a physical count of every item you hold, compared line by line with what your system says you should have. The differences tell you where stock is going missing, where records are wrong, and what your stock is really worth.

Your stock records drift every day. A delivery is booked in as 12 when 10 arrived. A cashier scans one flavour and hands over another. A damaged box goes in the bin and nobody writes it off. Each mistake is small, but they add up, and they cause real problems:

• Reorder points stop working. If the system thinks you have 20 and you have 4, it will not prompt a reorder until the shelf is empty.
• Profit is overstated. Stock that has gone is still counted as an asset until you find out.
• Customers get let down. Selling something online or on the phone that is not in the building costs you more than the sale.

A good stocktake fixes the numbers and, more importantly, shows you which of those habits to change.

Full count or cycle counts: which do you need?

Most businesses need both. A full count resets everything to a known figure once or twice a year; cycle counts check a small slice of stock every week so errors are caught while they are still small.

If your records are badly out, or you are moving to a new system, start with a full count. Once the figure is clean, cycle counts keep it that way, and your year-end count becomes a check rather than a rescue job.

How do you plan cycle counts?

Count your most important lines most often. The usual way is to sort products into A, B and C groups by how much they matter, then give each group a count frequency.

• A items: your top lines by sales value, plus anything small, valuable and easy to pocket. Count monthly.
• B items: steady sellers. Count every quarter.
• C items: slow, cheap lines. Count twice a year.

Worked example: a cycle count plan for 1,200 lines

A wholesaler carries 1,200 product lines. Roughly 10% are A items, 30% are B and 60% are C.

Over about 250 working days, that is roughly 17 lines a day. One person can count 17 lines in well under an hour, during trading, without closing anything. The A items, where most of the money sits, get checked every month.

Add two triggers on top of the plan: count any line that shows a negative balance, and count any line where a customer or picker reports "the system says we have it but I cannot find it".

How do you prepare for a full stocktake?

Preparation decides whether the count takes four hours or fourteen. Most of the work is done the week before.

1. Pick the date and time. Choose your quietest day. Decide the exact cut-off time at which the book figure is frozen.
2. Book in every delivery that has arrived. Anything that arrives after the cut-off is kept to one side and booked in after the count.
3. Post every sale and return up to the cut-off, including credit sales and orders still waiting to be delivered.
4. Tidy the shelves. One product per location where you can. Face up labels. Put loose items back in their place.
5. Deal with damaged and expired stock before the count, not during it. Write it off with a reason.
6. Map the building. Number every aisle, bay and shelf, including the back store, the van and any stock at another site.
7. Prepare count sheets or devices by location, in the order a person walks the shelves.
8. Brief the team. Explain how to count packs versus singles, what to do with stock that has no label, and who to ask.

Count in pairs where you can: one counts, one records. Better still, give each location to two people separately and compare.

How do you count without closing the shop?

Count one area at a time and freeze that area's book figure when you start it. Anything sold from that area during the count is added back from the till records afterwards.

Here is a practical way to run it:

1. Split the shop and stockroom into areas small enough to count in under an hour.
2. Count the back store, the warehouse and slow sections during trading, when nobody needs them.
3. Count the busiest sections before opening or after closing.
4. When a counter starts an area, note the time. That is the area's cut-off.
5. Do not move stock between areas while either one is being counted.
6. After the count, use the till to list sales of those lines between each area's cut-off and the end of its count, and add them to the counted figure.

The rule that matters most: goods in and goods out during the count must be kept separate from the counted stock. Most bad stocktakes come from a delivery that was half put away while the shelf was being counted.

What is the step-by-step stocktake checklist?

Use this on the day. It works for a full count and, in a shorter form, for cycle counts.

How do you handle stock variances?

A variance is the difference between what you counted and what the system expected. Recount the large ones, look for a paperwork cause, and only then post an adjustment with a reason.

Decide your tolerance before you start. A common approach is to recount any line where the difference is more than a few units, or more than a set amount of money at cost, whichever comes first. Expensive lines get a tighter limit.

Worked example: reviewing variances

A shop's stock is worth 48,000 at cost. After the count, five lines stand out:

Now look at each one before adjusting:

• Bleach +12. A delivery of a 12-pack was received but never booked in. Fix the goods received record, not the stock count.
• Rice −12. A case of 12 was sold to a trade customer on an invoice that was keyed as 1. Fix the invoice.
• Tinned tomatoes −8. Small, cheap and spread over damaged tins. Adjust with the reason "damaged".
• Phone chargers −9 and batteries −24. Small, valuable and near the door. Recount confirms it. Adjust with the reason "unexplained loss", and move both lines behind the counter.

After fixing the two paperwork errors, the real loss is 28.00 + 108.00 + 156.00 = 292.00, which is about 0.6% of the 48,000 stock value. That percentage is the number to track from one count to the next.

What reasons should you use for adjustments?

Keep the list short so people actually use it:

• Damaged
• Expired or out of date
• Counted wrong last time
• Booking error (delivery, sale or transfer)
• Theft or unexplained loss
• Used in the business (samples, own use)

After a few counts, the reasons tell you where to act. Lots of "booking error" means the goods-in process needs work. Lots of "unexplained loss" on the same shelf means a security problem.

What mistakes make a stocktake unreliable?

Most bad counts come from the same handful of errors, and all of them can be avoided.

• Counting during a delivery. Half the goods get counted twice, or not at all.
• Mixing units. Someone counts 6 cases as 6 units, or 24 singles as 24 cases.
• Adjusting first, asking later. If you post every difference straight away, booking errors are buried and you lose the chance to fix the real cause.
• Forgetting locations. The van, the top shelf, the display window, stock at a customer on sale or return.
• The same person counting and checking. A second counter catches what the first one missed.
• Not finishing the paperwork. A count that is never posted changes nothing.

How do you value the stock after the count?

Multiply each counted quantity by its cost price and add them up. That gives you your stock value at cost, which is the figure your accountant needs. The method you use for cost, such as average cost or first in, first out, is covered in how to value your stock.

It is also worth looking at the same stock at selling price. The gap between the two is the gross profit sitting on your shelves, and it shows you which slow lines are tying up the most money.