Stocktaking may not be fun, but it’s a vital task for SMEs

Johannesburg, 09 Oct 2019
Read time 5min 00sec

“Stocktaking is an arduous and time-consuming task that is often placed at the bottom of small to medium enterprises’ (SMEs') to-do lists. This is not a good idea, because stocktaking forms a vitally important part of any operation’s financial management processes,” says Bridget du Toit, head of sales and services at EasyBiz Technologies.

She outlines exactly why this painstaking, but critical task is so important for businesses, and highlights some of the pitfalls of neglecting to do so.

Reduce stock losses

Du Toit says continuous monitoring helps business owners prevent stock losses and misappropriation. “Depending on the volumes of stock their business moves, their inventory should ideally be checked on a weekly or monthly basis. And then, of course, there is the all-important financial year-end stock-take, which is necessary for auditing purposes.

“Due to the nature of our business, which mostly comprises links and downloads, we take stock every two months. This would be unacceptable for a spare parts business, for example, where misappropriation or anomalies can come into play if business owners are not vigilant,” she adds.

She is quick to explain that stock creep is not only the result of theft. “If stock-heavy businesses have warehouses in five different provinces and they pull stock from the wrong warehouse, the warehouse they pulled the stock from could run out of items, hence the anomalies. These anomalies have a ripple effect as they could then affect customer service and delivery in the relevant area, as well as result in increased costs for the company as they now have to replenish the stock earlier than planned.”

Increase accuracy of financial reporting

Du Toit says the constant updating of inventory records means more accurate financial reporting. “It is important to determine whether the business’s physical stock matches its financial stock.

“Some online stores need to conduct inventory updates every day. This is because people reserve items that they don’t buy. So, even when it seems like they are out of stock, they may actually have stock available.”

Establish inventory movement trends

Knowing which stock items are moving faster and what is not moving at all allows business owners to make better decisions around which products to keep versus those they should consider discontinuing.

“This allows for better decision-making. Think Spree and Superbalist – if they have excellent inventory records, they can manage their businesses optimally. They know what is fast-moving and what is slow-moving. They can have a sale of the slow-moving items to get them off their shelves or they can decide to have a sale of fast-moving items to improve their cash flow and quickly put in an order so they don’t run out of stock. Regular stocktaking helps businesses to constantly stay abreast of their product and avoid losing money,” notes Du Toit.

Get more precise re-order levels

Staying on top ofwhat stock is physically on the premises and what is in the financial system is critical. Accounting systems allow business owners to set an alert that notifies the administrator when stock levels get low. If the physical stock marries up with the stock on the financial system, the business owner can manage his or her business more effectively by always making sure there is sufficient stock available.

Du Toit says the days of relying solely on manually counted stock are numbered. “Today, there are so many processes in place to ensure accuracy that the anomalies are very small. In addition, by allowing only one person to access stock in a particular warehouse, controls are tighter and it becomes easier to establish where the anomalies are. This allows for greater employee accountability.”

Gain valuable market insights

Identifying slow-moving items or items that are not moving as one would like them to move offers valuable insight into how to market the products. So they need an extra boost or can the business owner get by with less of a marketing push?

Over time, stock movement trends allow business owners a high-level insight into what works and what doesn’t and informs their approach to market. This can be used for future planning and strategising.

Adhere to cut-off procedures

Stock-takes are a must at year-end as they are used to compile the financial statements. Auditors use the year-end stock count to verify and audit the value of the stock in the business, which is important as auditors provide assurance. This is important, especially if the business is looking to apply for funding.

Importantly, business owners need to remember that if a sale is recorded at the end of February, then the stock must have physically left the building for it to be a legitimate sale.

Du Toit says businesses cannot put the invoice through on 28 February and then only deliver the item on 3 March. “If they do this, the sale cannot be counted as part of their February financials. If the auditor discovers this, the business will have to reverse the sale and put it through in March.

“This can detrimentally affect the business’s financial statements, especially if the reversal means not meeting targets and not being able to pay staff incentives.  In some instances, staff have been known to load false invoices on the last day in order to get commission, submitting a credit note the following month, compelling the employer to pay commission on a target that wasn’t really achieved,” she adds.

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