Stocktaking Guide for UK Businesses

For businesses, stocktaking is the physical verification and recording of all the stock (or inventory) on hand at a specific time. This systematic process involves counting all products and materials and comparing this to your inventory records to verify accuracy and identify discrepancies.

In this blog, we will explain how it works.

Why is stocktaking important?

A meticulous stock take (or inventory count) is essential for any business dealing with physical inventory. It ensures accurate financial records, helps identify potential discrepancies, and promotes efficient stock control.

Inventory Management

Stocktaking helps businesses reveal discrepancies between physical stock and records. It helps identify shrinkage (such as damage or theft) and inefficient ordering practices.

An accurate stock take enables better planning for future purchases and facilitates better decisions to optimise profitability.

Tax

Accurate stock valuation is essential when calculating a Corporation Tax bill, and unresolved stock discrepancies can lead to over and underpaying tax.

Financial Statements

The amount of stock a business has will directly impact the value of your business’s assets, as appears on its balance sheet. Accurate stocktaking helps businesses ensure their financial health is accurately reported.

Audit

When auditing a business, the auditors need an accurate, documented stocktake process to verify the existence and valuation of inventory.

Stocktake preparation

A stocktake can be a daunting task, particularly when a large inventory is involved, but appropriate preparation can make the process considerably more manageable.

The following outlines the broad strokes involved in preparing for a stock take. Please note that these are just guides; the real thing may be more complex depending on your situation.

Scheduling your stock take

It is important to choose a date and time for your stock take that will result in minimal interruptions. Ideally, this should be outside of regular trading hours. While not a strict requirement, your auditor may choose to observe your stocktake, especially in businesses where inventory represents a significant portion of the assets.

Check inventory records

Before the stock take, it is wise to ensure your inventory records, including stock location and product codes, are up-to-date and printed for physical reference.

Get stock organised

The counting process can be made significantly easier by organising your stock. You can do this by grouping similar items and ensuring easy access to the entire inventory.

Pick the right people

A stocktake requires excellent attention to detail. We recommend assigning reliable team members for the stock take, ideally with solid product knowledge. They should then be fully briefed on the stocktake process.

Plan for discrepancies

Establishing and communicating a clear procedure for dealing with any discrepancies between physical counts and inventory records is a good idea.

Exclude stock when necessary

Before the stock take, it may be necessary to exclude certain items of stock, such as items that have been sold but not yet dispatched or new arrivals that have not been added to the inventory yet.

How to take stock

Once preparations are complete and the scheduled stock take day has arrived, some key actions are typically required for a stock take. Your auditor, if in attendance, will be able to provide plenty of advice, so we recommend reaching out to them if you are unsure of any part of the process.

The counting process can be arduous, and it requires precision and patience. You can make this easier by assigning specific sections or categories of stock to dedicated staff members, sharing the burden and preventing confusion.

You should ensure a consistent counting system, such as tick sheets or electronic scanners.

Emphasise accuracy

Accuracy is paramount in a stock take, and this must be communicated to your staff. Ensure that estimates are always avoided, and double-check all high-value items or large quantities.

Take your time and schedule breaks

A stocktake must not be rushed, and it’s important to schedule regular breaks to maintain focus and minimise errors.

Mark counted stock

A common error in stocktaking is the double counting of stock. This can make a real mess of your stock take and be a frustrating issue to fix. To prevent this, implement a system to mark all stock that has been counted. This can be a simple tick on a sheet or a temporary mark on the product.

What to do after the stock take

Once the stock take has been completed, the next step is to record the physical stock counts into your inventory management system. From there, a discrepancy analysis must take place. This means:

• Investigate any discrepancies between physical counts and recorded stock levels
• Identify potential causes, such as damage, shrinkage, or system errors

If necessary, recount or adjust your records to reconcile physical stock with digital records. Any adjustments must be documented, along with reasons given for the adjustments.

If your auditor is assisting you with the stock take, they will be able to advise you on the best ways to investigate and reconcile discrepancies. They can also help you develop an action plan based on the stocktake findings. This may involve adjusting stock control procedures, reordering stock, or addressing potential shrinkage issues.

For future reference and audit purposes, you must retain all stocktake records, including physical count sheets and discrepancy reports.

If you are unsure of any part of your stocktaking obligations or would like advice on the best ways to count, record and analyse your stock levels, a qualified auditor can help.