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

Updated May 16, 2024

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

Efficient inventory management is more crucial than ever. With the rise of omnichannel retailing and the increasing demand for real-time inventory data, staying on top of physical inventory is a necessity and a competitive advantage.

While you can inventory your store at any time, traditionally, the last weekend of January or the end of July is 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.

• Once completed, your store will have more best sellers and fewer out-of-stocks.

• You will find items you didn't know you had.

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

That's because...

Counting stock and reconciling your records can seem daunting—especially if you haven’t done one for a while or have a larger store. It can also be 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.

Preparation is key!

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

A Week Before:

Plan

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

• 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 to see if they will cover your liability for a one‐time event.

Price and Organize

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

• Everything - as much as possible by category.

• Write out an instruction sheet that pertains to your store. For example, What is a unit?

Map

• Take an oversized 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 counterclockwise, walk around and assign a number to each rack, display, and shelf; each number represents 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 up counting, enter categories (from your POS system) onto the counting sheets with every price in the section listed. If a description could speed up counting, enter it beforehand as well.

• Have plenty of extra blank sheets for sections with too many price points for one page or missed sections.

Arrange

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

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 number, and email address. Sign up anyone who calls—some won’t show—and you’ll be covered.

• Get plenty of pencils with erasers.

Then ...wait

• Don’t allow yourself to start counting through the day. Customer service will suffer.

The Big Night:

Feed them and track them

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

• As your counters arrive, check off their names.

Set the ground rules

• No horseplay, accuracy is expected, and be nice to each other. You'll be asked to leave if you don’t follow the rules.

• No one will be paid until they have signed their time card and all information filled out.

Buddy them 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 can 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 ensure 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 for counting every sheet.

• 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 of $ at the bottom by category.

Thank them

• If they did a good job, tell them you will contact them 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 quickly 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 have caused by not checking invoices, sloppy transfers, miskeyed 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 accurately track the differences.

Post-inventory actions

Using the data gathered from physical inventories can help tailor your stock to customer preferences, enhancing their shopping experience. Leveraging this data can also inform your marketing strategies, ensuring you promote the right products at the right time.

In Sum

Staying ahead with efficient inventory practices is vital as retail continues to evolve. Embracing new technologies and methodologies simplifies the physical inventory process and positions your business for long-term success in a competitive market. Even if you use your employees to count stock, these steps will help make it not a hassle but an organized breeze.

If you have questions about temporary workers, age requirements, or similar issues, please consult your local labor board to ensure compliance.

Don't let your fear of work keep you from knowing exactly how much stock you have so you can alter your plans and build your retail sales.