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Why Performing a Physical Inventory is Essential to Your Retail Shop’s Success

Performing physical inventories is critical to the success of any retailer. Even the best record keepers can miss a transaction. At any given time, the number of units you have on paper may differ from the number of units actually in your inventory. Physical inventory reconciliation will help you find such errors by checking your records against your actual stock.

While a physical count can be a burdensome task, it's one of the most important things you can do to ensure your profitability and success. Here are a few more reasons why performing a physical inventory count is so important:

Taxes. An annual physical inventory count is usually required for tax purposes. You can also record your losses to lessen your tax burden.

Shrinkage control. Physical inventory counts help you identify shrinkage problems. Units may be missing from your inventory for any number of reasons, but the most common causes are loss, damage, and theft.

Informed decision making. With accurate, up-to-date information about your inventory, you'll be able to make informed decisions when working with wholesalers and vendors.

Efficiency. Without accurate stock information, effective inventory control is impossible. An accurate inventory management system helps your staff save time and serve their customers better. Instead of having to check the stock room to see if a product is available, they can trust their system's inventory data and focus on serving the client.

How Often Should a Physical Inventory Count Be Performed?

How you approach a physical inventory will depend on what is best for your business and the kind of inventory involved.

  • Seasonally/Periodically - Performing a seasonal inventory count can give you useful information about your stock. You may find this information coming in handy throughout the year - particularly with seasonal items that have a limited shelf life. Retailers who sell perishable items may choose to conduct periodic counts to allow for spoilage; fashion retailers might do their inventory counts at the end of a season.
  • Annually - For tax purposes, a physical inventory count needs to be done at least once per year. Annual inventory counts require the least effort, and any losses recorded in your inventory can be used to reduce your tax burden.
  • Perpetually - Technology has made it possible to maintain accurate inventory data at all times. Inventory management software, like GiftLogic, can make real-time updates to stock levels the moment a unit is sold. Perpetual inventory counts allow you to make informed decisions about your business using the most up-to-date information. You'll still need to perform physical counts to reconcile your inventory, but you can accomplish this with cycle counting. Cycle counting involves counting only a small segment of inventory in a specific location and on a specific day. As they are less disruptive than a complete physical count, cycle counts can be performed several times per year.

A physical inventory count should be performed at least once per year, but more frequent checks can be useful. By checking your stock periodically, you can be sure your inventory matches what is in your records. You'll also be able to identify any problems in your record keeping procedures. As time-consuming and burdensome as they may be, physical inventory counts are essential to the success of any retailer.

A point-of-sale system is an investment that will pay for itself many times over in repeat business and higher profits. If you don't already have one, consider investing in a point-of-sale system for your retail store.