What is a stocktake?
A stocktake is a full count of all the stock held for resale by the business. Depending on the business, this can include finished items ready for sale, raw materials, component parts and part-completed items. The stockcount is then used to calculate the value of the stock in the business at that time.
A stocktake is crucial for accurate financial reporting, as it provides accurate data for the business’ stock balance. This in turn not only feeds into the value of the assets held by the business, but, even more importantly, ensures the gross margin reported for the period is accurate.
Why perform a stocktake?
There are, however, further benefits to the business of completing regular stocktakes throughout the year:
Keeping a record of accurate stockholdings, enables stock to be identified and picked for a sale before the business places any new purchase orders. This eliminates the risk of over-ordering (i.e. placing orders for items the business already has in stock, which then ties more cash up in stock than is necessary).
Regular stock counts can help identify slow moving stock, which the business can then target via sales promotions, or place a hold on any new orders of those stock lines.
Accurate stock levels enable the business to review the movement of stock and sales trends by stockline, with the aim of planning orders for the right stock at the right time. This ensures the business can fulfil customer orders quickly, reducing delays and improving the time taken to convert a sales order to cash in the business, whilst minimising the amount of cash held up in stock.
An accurate stock value is vital for calculating an accurate gross margin for the period. Therefore ensuring the stock value is as accurate as possible during the year is essential to being able to monitor the actual gross margin against expectations. As overhead costs in the business are relatively fixed, a small movement in the gross margin has the potential to significantly affect the business’ profit for the year. A quarterly stocktake enables the gross margin to be accurately monitored, and action taken to minimise any adverse effects on profitability at the time, therefore avoiding a potential shock at the year end.
Regular stockcounts and comparison against expected stock levels can help identify any stock discrepancies, errors, or stock losses to be investigated. This is particularly important where a number of people are able to book items out of stock.
Depending on the amount of stock held, and the stock systems used, the business may decide to complete a full stock count quarterly, regular counts of a varying area of stock, or random stock spot checks, in order to maximise the accuracy of the stock values reported throughout the year.
Historically the stock count was a manual process, however there are many apps and stock systems now available to help monitor and record stock levels, such as unleashed and Cin7.