How to Do Year-end Inventory for Your Store

Written by Austin Chegini

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After a long year and a busy holiday season, spending more time in your storage room might be the last thing you want to do. However, before you can relax and celebrate the New Year, you need to do year-end inventory and organize your shop.

With the right process, you can get your store in the best position to exceed next year’s goals.

The importance of Year-end Inventory

Unlike daily or weekly inventory checks, taking stock at the end of the year has significant impacts on your business. 

To start, your year-end inventory helps to organize your store after the holiday season. You likely have many limited-time items on display, as well as seasonal items that will need to be put in storage soon. As you take stock, your employees can clean the store and make sure items are in their correct locations. 

More importantly, you cannot plan for the year to come without knowing what you have in stock. By tracking what’s selling and what’s not, you can plan your purchase orders for next year. If you fail to notice items sitting on shelves or in storage, you could order more goods than necessary. 

Lastly, you will need to know your year-end inventory to report your taxable income. Your Cost of Goods Sold (COGS) is a business expense. Your year-end inventory determines what value you report.

COGS = Initial Inventory + Purchases - Ending Inventory

If you over-report or under-report your COGS, you can affect your taxable income. Something as small as miscounting your inventory could be a red flag on your tax return.

How to Take Year-End Inventory


Don’t rush straight into counting. Instead, come up with a plan to simplify your year-end inventory process.

First, determine how many staff members will need to help. While you may want to make this an “all hands on deck” situation, having too many people can complicate things. Aside from everyone bumping into each other, you want to make sure you can trust your staff. They will be dealing with all your merchandise, so you want people who will count accurately and honestly.

Likewise, think about how long the process will take. For large businesses, a total stock take can be a multi-day affair. This aspect is important since you might want to close your doors during the count. 

To make the process go smoothly, you can rely on tools and technology. For example, handheld barcode scanners can help keep track of items. Similarly, a digital inventory system can give you a baseline for what items should be in stock. You can then check against this list to find discrepancies.

Start slow, take your time

It’s essential that you get the count right, so do not rush this process. Your year-end inventory will have implications on next year’s profitability, so explain everyone’s role in detail and be patient with confused employees. 

While you certainly want to be efficient with your time, try not to be too concerned with labor costs. It is okay if staff stay longer than expected, especially since their efforts now will help reduce your future costs.

Draw up your layout

Sometimes stores can become cluttered. As items get moved around in storage rooms, a few will end up in random places that make them hard to find. 

Before starting you count, create an organizational plan for your employees. This could be as simple as a general map that shows where items go or as detailed as individual labels for each shelf in your stock room. 

Future stock takes will be much easier if everyone sticks with this plan, so it is well worth taking the time to make.

Counting your physical inventory

Now comes the fun part of actually taking stock! 

Start by assigning areas people to areas of your store to prevent overlap and mistakes. If too many people are in the same area, items will be counted twice or not at all. 

If your records are up to date, give each employee a spreadsheet that lists the expected inventory. They will then count their respective items and confirm how much stock remains.  

Since your year-end inventory needs to be precise, make sure your employees are very thorough. If you have open containers, make sure they are emptied before counting. Items can be misplaced, and a box of 24 hats could end up having 23 hats and a pair of gloves.

As your employees count, have them re-organize at the same time. Based on your layout, they can record the stock levels and then put the items in their correct locations. 

Analyze your data 

After the count is complete, collect your spreadsheets and add up your totals. Now is the time to identify gaps in your reporting. 

If your expected inventory doesn’t match up with your actual inventory, look into these signs of shrinkage:

  • Theft: Shoplifting and employee theft could be causing you to lose money. If you sell snacks, your staff may sneak a treat when no one is watching. You should be wary if high-value items are missing.
  • Damage: Perhaps an item was damaged and thrown out. Do you have a process for logging this and updating your inventory?
  • Unprocessed sales: If you’re using an outdated inventory management system, some sales may not be recorded. Make sure items don’t slip through the cracks,

Your inventory data will also show you which items sell best. Although a specific item might seem to be flying off your shelves, the data may paint a different picture. 

Without accurate records, you might put 10 candy bars by your register and notice all 10 are no longer there after a few days. While it may look like you sold them, they might actually have been stolen. By comparing your sales data and inventory, you can manage identify and address these issues to ensure 100% accountability.

Set aside outdated goods 

Once you take stock and account for everything, it’s time to do some housekeeping. You likely have products that aren’t selling well, so now is a good time to liquidate them. 

Although it may seem like there is no harm in letting stock sit on a shelf, everything comes at a cost. 

What other product could you sell instead if you had free shelf/storage space? Is your capital tied up in physical inventory?

To make the most of your store, it is best to liquidate dead stock and use the capital to sell products with higher demand. 

Speed up stock takes with a modern point of sale 

With a modern retail POS system, you can drastically increase the speed of your year-end inventory process. You’ll not only save time and labor costs, but you will also get higher efficiency and accuracy.

The Epos Now point of sale system allows you to:

  • See expected inventory vs actual
  • Send data directly to your accounting software
  • Add notes to products to say where to find them

On top of this, our POS system integrates with over 100 applications, stores all data safely in the cloud, and can be accessed anywhere on any device. 

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