The value of a stocktake

Some people have discussed with me recently that as a stocktake is a lot of work of endless counting of ‘whatnots’ and whether it would be better for them to use computer estimates, which would save them some time.

Yes, it is true that in some situations, the ATO will accept estimates notably if your turnover is under $2 million dollars (many of you, please check exactly what constitutes turnover to the ATO), and you can show that you have a reliable inventory system. Taking as one suggested spot checks might help to show whether you do have such a *reliable inventory system* might help. If so you are doing a partial stocktake anyway.

However, I would argue even putting aside the ATO requirements and its potential problems that at least an annual stocktake is important.

What it allows you to do is compare your physical stock with your computer records. This allows you to analyse any discrepancies. This is important information that you probably are not aware of.

We break down these discrepancies into four major reasons - shoplifting, employer theft, vendor errors and administrative errors.

Shoplifting - How can you get an idea of what was stolen unless you do a stocktake? Who knows what is gone?

Employer theft - This is actually the hardest one of all to find. I have seen video footable of a person in tears when they discover a trusted employee who they have known for years has been stealing for them. I have known you for 35 years, since primary school.... What makes this so difficult to find is that these people know your systems and how they work. It is unlikely the computer would much help here.

Vendor errors- In this day of electronic importing and exporting, if someone in the chain makes a mistake, it will get into your system often without any checks. Sometimes you do catch it, for example, an invoice said 10 items and when you count it, you have something else, but sometimes it gets missed.

Administrative errors - People do make mistakes entering in quantities and prices so again by passing the computer checks. Often when people take short cuts when doing a sale as time is at a premium, and they just want to put through sales quickly. A typical example of cutting corners is to use department sales if there is any issue, they bypass the point of sale. If so, your computer would increase your tax liability as it would see your stock holding being the same, but you have made a sale at a pure profit.

Sometimes it can find things that are in the computer, but you are missing. For example, doing a stocktake recently, one of my clients found a large pile of greeting cards stored in a cupboard, which they did not know about. Interestingly the computer quantities were right as they had been stock received. Another example was another client found many items that were past their use by date. The quantities were in the computer too, but they are not sellable.

What you can do with our point-of-sale system is to select a continuous stocktake which allows you to cut the stocktake into manageable sections. So instead of doing one big stocktake jobs, you can do many small say three-hour jobs. Two advantages of this option are that you do not get any sudden surprises, and you get the spot check advantage too.

Furthermore, once you have done a stocktake we have many reports that can help you reconciled your system, and you can do a check to find your overall loses. Current figures suggest somewhere between 0.5% to 2.5% losses, although I have seen much higher figures too.

So it is our company and my own personal advice despite what some are saying that it is best to do a stocktake. If you intend to do what these people suggest, please consult your accountant, and I suggest get their advice in writing.