How to take your annual inventory?

Posted on November 25 2021

Reading time: 3 minutes

The annual inventory is a critical step in the life of a company and involves a significant amount of work. This task, which all employees look forward to… consists of counting the company’s inventory once a year (before the end of the fiscal year).

It allows you to know the real quantities of stocks in your company to see if there are differences with the quantities indicated in your software.

how to take annual inventory

The tax inventory is a legal obligation

In Canada fox example, businesses are required to take an annual inventory before the end of the fiscal year in order to file their tax return. Good inventory management is essential to reduce the complexity of the year-end return.

annual inventory

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Mistakes to avoid

annual inventory

It can be tempting to use a tool like Excel to do your annual inventory. Obviously, it is less expensive than an inventory management software. However, this home-made tool has its limits and can be detrimental to the smooth running of your business.

With Excel, the information is not updated in real time like with an inventory management software. Therefore, there may be several people working on the file at the same time, which increases the risk of error.

A small mistake can cost you a lot of time and money. For example, if your inventory indicates that you have no more of a particular product, you place an order, but in reality an order had already been placed. Because of a file that was not up to date, you have just spent budget unnecessarily.

Also, Excel does not allow you to have a history of actions on the material. The inventory version can quickly become outdated and you will lose a lot of time to update everything.

Which procedure for the physical inventory of stocks?

The first step is to establish a plan of action. You must choose the day and time when the annual physical inventory begins. There should be no merchandise sales or deliveries at that time.

You will need to divide your business into zones and assign your staff to these different zones. It is therefore necessary to foresee a relatively large number of people participating in the inventory in order to stop the activity of the company only for a minimum of time.

Next, if you do not have inventory management software, you must do a manual count using a count sheet that must be numbered. The person who counted an area must identify himself on the paper in the space provided.

Once the areas are counted, other people will come in and recount the area to make sure there were no errors on the sheet. The person who checked should be sure to initial the paper again once the check is complete.

Collect the count sheets and check to see if the actual data matches the data in your inventory. Make adjustments if necessary. If there is a discrepancy, you will need to do an analysis to determine the source of the error or missing merchandise.

Inventory by cyclic count

Inventory management can also be carried out by cyclic counting. This process consists of dividing the task into several steps and distributing them over time to limit and correct the risk of errors.

The accuracy of the quantities is essential to ensure effective planning and management of the business. Cyclical counting replaces the annual inventory, which can be time consuming and error prone. With this method, larger items are counted more often than smaller ones. This ensures the sustainability and accuracy of the data.

Blind count inventory

To ensure the validity of the inventory, the counting must be done “blind”, which means that the people doing the inventory must not know the theoretical quantities at all, otherwise they may be influenced.

How can Hector help you?

Hector’s inventory management software can save you a lot of time and reduce the risk of inventory errors. Here are the 3 easy steps to take to complete your annual inventory with Hector:

Establish a plan of action: You must determine the day and time of your annual physical inventory. Make sure you have no sales or product deliveries at this time as no materials should be coming in or going out of the business.

All materials should be labeled. You should also divide your company into sections so that you can assign your employees to the sections they will be scanning.

Scan the equipment: With the barcode scanner or with our mobile application, you just have to scan the barcode / QR code of each equipment to validate that it is present in the inventory.

Inventory Verification: With our annual inventory report Hector generates a report of what was not scanned. This way you have a list of items that have not been scanned.

All you have to do is find out if the equipment has been broken, lost or even stolen and enter it into the software. This way, you will be able to generate annual reports on this inventory difference!

Hector allows you to have an overview of your inventory from one year to the next. Taking inventory is a process that requires planning and organization.

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