Keeping record of stock is a critical part of any product-based business – and in many places it’s a legal requirement and part of end-of-year reporting obligations.
So what’s the best way of keeping record of stock?
Here we home in on different ways to do this – from pen & paper to inventory management software – and outline key features that will improve your stock management.
What are the main ways of keeping records of stock?
There are several ways to keep record of stock in your business. We’ll start with the three main methods and work our way through.
1. Recording stock with pen and paper
In a startup business or side hustle, it’s likely that this is where you will start with your official stock keeping. And yes, when you only have products numbered in two digits, this is probably a practical and sensible option. You can periodically count items, or make a note every time inventory comes in and stock goes out.
Pros of using pen and paper:
- Little to no financial outlay
- Simple to use
- Straightforward view of available stock
Cons of the pen-and-paper method:
- Can quickly become inefficient when stock levels grow
- Requires time to regularly update
- Relies on an individual’s accuracy
2. Recording stock in Excel
Using Excel or Google Sheets adds the next level of complexity to recording stock.
Pros of using excel for recording stock:
- Allows for automatic calculations using formulas
- Saving in the cloud reduces risk of losing data
- Minimal financial outlay
Cons of the excel method for stock recording:
- Requires manual input – which can be time-consuming
- Relies on an individual’s accuracy
- Doesn’t provide real-time stock levels
3. Recording stock with inventory software
Technology is certainly a friend of those businesses that have stock to track. Inventory software opens a world of benefits when it comes to managing up-to-date stock levels, and allows an organisation to use valuable data and insights from this to enhance its operational processes.
Pros of using inventory software:
- Accurate tracking of stock levels across various locations
- Accurate record of the real value of inventory held
- Trackability of stock age to avoid obsolescence / expiry
- Less chance of stockouts thanks to features like low stock alerts
- Fast and efficient reordering
- SaaS Cloud-based software offers portability and security
- Many, many more benefits (which we’ll talk about below)
Cons of recording stock with inventory software:
- May require some financial outlay
- Specialist training may be required
- Time and resources needed for integration – which may cause temporary interruption to a business
The difference between perpetual and periodic inventory systems
When you’re looking at inventory systems to use in your business, bear in mind that there are two different kinds – perpetual and periodic.
A periodic inventory system is one that typically small businesses use, where held inventory is minimal and easy to physically count. And the checking of this is done on a periodic basis.
A perpetual inventory system – like the one Unleashed offers – is one that allows for constantly updated inventory records and real-time accuracy. It’s for businesses that need accurate stock levels every time an item is sold or received. By using digital technologies it’s able to live track inventory, as well as automatically adjust the cost of goods sold.
However, it’s worth noting that some businesses may still undertake what’s called a ‘cycle count’. This allows you to check how accurate your stock records are by physically counting a small selection of products on your shelves. So even though you can rely on your perpetual inventory system 99% of the time, a cycle count could be integrated into your stock management process.
How do you maintain stock records?
When comparing the above options for recording stock, it’s clear that for most businesses, pen and paper or Excel are the suboptimal methods. Too admin-heavy and error-prone to be effective beyond a very small scale, it’s best to consider the way inventory software works to track stock changes.
Here are some of the scenarios where inventory software will automatically update your inventory records:
- Barcoding for inventory management – when you’re scanning stock in and out of warehouses
- Receipting purchase orders – tracking when stock is coming into your business
- Sales orders & shipments – tracking when stock is leaving your warehouse
- Software integrations that record sales and inventory changes by assigning inventory to a sale – e.g. Shopify, Amazon, Vend (for Point of Sale)
- Via a built-in B2B eCommerce portal that streamlines your B2B sales
- Manufacturing – inventory software can turn multiple SKUs of raw materials into a new, different SKU for the finished product, thereby ‘using up’ the components
- Stock takes and adjusting your digital records against your physical inventory to record losses, for example from theft or damage
- Supplier and customer returns, of either all or part of the original purchase
- WIP (work-in-progress) – tracking where stock is in the manufacturing process
How does inventory software connect with accounting systems?
Many inventory software systems (including Unleashed) connect with accounting systems like Xero and QuickBooks. This feature allows businesses to have seamless integration of two separate – but very much linked – functions, without needing to operate in and out of various digital systems.
Other benefits of a connected accounting application include:
- Payable transactions updates. Your inventory software sends the accounting system’s payable transactions for payment and reconciliation as you receive stock, and this includes costing invoices – even from multiple suppliers.
- Receivable updates. The second you complete a sale, that information is sent through to the accounting system. As the stock moves, the stock value and cost of sale are updated in the accounting system to ensure your profit reports are correct.
- Perpetual stock updates. Your inventory system updates the accounting system in real time so you have instant visibility into all your stock movements right down to the Profit & Loss and Balance Sheet level.
- Assembly and bills. This allows you to sell bundled products without needing to pre-assemble them. With Unleashed’s kitting process, for instance, you can track the value of the stock used, giving you an accurate cost of your finished goods.
- Instant reconciliation tools. It is essential to keep your inventory software and accounting systems’ data synced. To ensure there are no discrepancies, the accounting system automatically and securely reconciles your transactions to save you from hours of manual administrative work.
- Contacts. As you acquire new customers or suppliers, simply create them in your inventory management system and it updates the accounting system for you.
Are stock takes a legal requirement?
It’s certainly the case for New Zealand, Australia and many other countries around the world. This is because it directly relates to the taxes your business may have to pay at the end of the financial year.
Inventory and your financial reporting requirements
Following on from the point above, inventory is a part of the annual financial reporting requirements that are made to the official tax collection organisation in your country.
These obligations vary from country to country, but generally any business will need to file its accounts with a government body, like the IRS in the United States, the IRD in New Zealand, ATO in Australia, and HMRC in the United Kingdom. And you may also have to do a stocktake at the end of the financial year.
Every time you buy inventory, it is a cost and an asset. And when it is sold, it is recorded as income – as well as no longer being an asset.
Alternatively, you can also record it only as an asset, and then when it is sold, it’s recorded as a cost and income. It just depends on your business and which works best for you.
Recording stock and financial reporting in the UK
In the UK, not every business will have to do a stocktake, but the HRMC requires businesses to supply the following information:
- Details of assets owned by the company
- Debts the company owes or is owed
- Stock the company owns at the end of the financial year
- The methods you used to work out the stock figure
- All goods bought and sold
- Who you bought and sold them to and from (unless you run a retail business)
For financial reporting and income statements for your business, you will need to provide the cost of goods sold and subtract this from net sales, to calculate your gross margin – which is what you will be required to pay tax on. And to find out how much inventory you have purchased and sold – as well as what needs to be written off due to theft or damage – you need to have accurate stock records.
You’ll need to calculate the value of your inventory, usually at the end of an accounting period or the financial year. And while there are a number of ways in which you can do this, the most common are:
- FIFO (first-in, first-out)
- LIFO (last-in, first-out)
- Inventory weighted average (AVCO)
- Specific identification method
What’s clear is that there are plenty of reporting requirements when it comes to the stock records of your business. So keeping records as accurate as possible is key to less stress and hassle come tax time.
Other benefits of recording stock in an inventory software system
Recording stock in an inventory software system provides benefits to all areas of a business:
- Allows for precise decision-making. When you have 100% accuracy of stock records, there are all sorts of insights you can use in your business – like refining procedures, forecasting stock demand and planning promotions – to ensure you make the right decisions for future growth.
- Provides specifics for sales. When you know what sells best and where, you can spend more time focusing on those products and locations. From profitable price points to identifying trends, inventory software provides a raft of useful data for your sales division.
- Establish KPIs and check that your business is meeting those targets. If you’re putting in place a strategy for your business, it’s ideal that you understand how to get there. Wanting to increase inventory turnover? Then you need to know exactly what it is right now. Keen to reduce low-turning stock? You have to be able to identify those products.
- Minimise the risk of stockouts, overstocking and dead stock. Any one of these occurring in your business can spell disaster: not enough stock, and you miss out on sales; too much and it’s costing money to hold onto; and dead stock is simply a waste.
- Reduce resources required for manual stock management. Tracking stock and doing periodic stocktakes take time and can cause disruptions to your business – time and money that could be best spent elsewhere.
- Optimise warehouse organisation. Having a greater understanding of your stock levels, and which are most in demand, will allow you to organise your storage facilities in a far more efficient way. This provides ease of use for employees and minimises time spent procuring products.
- Track stock across multiple locations. You can easily keep track of stock across multiple warehouses, in multiple locations, anywhere in the world, with real-time accuracy allowing you to understand whether you need to move stock.
- Pick, pack and dispatch. Pick and pack features give you more control of your warehouse operations. You can track stock from ‘pick’ right through to ‘dispatch’, including track-and-trace for orders on delivery, and can even keep your staff updated via the inventory software.
For manufacturers, retailers and other product-based businesses, tracking stock can be a real headache. But it doesn’t have to be. There are numerous tech solutions now available – and in a price range accessible to SMEs – to provide accurate solutions for recording stock, with many benefits that flow into other operations of the business.
- Find out more about top inventory management techniques