Building a solid foundation of inventory management is the key to success for any e-commerce business, especially as the holiday buying season approaches. Accurate inventory helps identify problematic operational processes and creates a system of checks and balances between your accounting and your warehouse teams.
Overselling, which is one of the most dangerous situations for a business, can be difficult to identify until it has reached a critical level. Following our simple inventory best practices will give you key insights into how your business is growing and what products are fueling that growth. The counting of inventory usually occurs in stages based on the needs of your business. There’s a pre-count, a physical count, and the cycle count.
It sounds simple enough, but resist the urge to jump right into your physical inventory count. Like any important task, preparation is key: If you’re going to paint your house, you’ve got to first tape the trim and lay the drop cloths. Similarly, there’s some critical prep work that needs to be addressed in the pre-count:
- Decide on frequency. Inventory should be counted at least twice a year, which includes a departmental inventory count and a storewide physical inventory. Every business is different, so decide when and how often to count inventory based on what will provide the best picture of how your business is performing. For most product-based businesses with lots of normal dollar value items, counting twice a year should suffice. Jewelry retailers, for instance, might need to do a count every night because losing a few specific high-value items would be detrimental to the business. So take into consideration the size of your products, the value of your products, and how many products you have when you decide how many physical counts you need annually.
- Consider outside help. If it’s in the budget, hiring outside help is a great idea. Much like mixing up staff to count different areas of inventory, hiring an outside specialist to either execute or manage the count will eliminate any over-familiarity of the products and stock. Plus, inventory experts can help you finetune the process for a more accurate outcome, rather than using an employee who is normally in charge of warehouse management suddenly switching to a different job. Even if you’re hiring extra bodies to count with your internal team, getting help from the outside is likely to make the count go faster.
- Select a count date. The count date is an arbitrary line you draw in the sand, and on that date, you must suspend all operations in order to do the count. That means no receiving inventory and no shipping out any inventory. Why? Because if you have things coming in or going out of your warehouse while you’re counting, you’re not going to get an accurate count.
- Bring accounting up to date. This means all bills or item receipts and all sales transactions are entered right up to that count date. Once they’ve been completely entered, put a date lock on your accounting system, setting it so that no one can enter a transaction before that arbitrary count start date. This enables orders that you enter in the past in your accounting system to affect your present count. So if you enter in an inventory adjustment that says there are 10 items and then you go in and put in the sales transaction before that date, that registers as -1. All of a sudden, instead of having 10 you’ll have nine.
Once you’ve completed your pre-count, you’re ready to move on.
– QuickBooks ProAdvisor Chris Robinson