As the end of 2023 approaches, like many businesses, you are surely preparing to carry out your end-of-year inventory.
This is the time when the numbers need to be aligned and stocks need to be checked. If for some, this task is seen as a formality, for others, it can quickly become a real headache. In both cases, all companies must confront it.
This is why it is essential to understand the key aspects of inventory and adopt effective methods to make it a smooth and well-controlled operation.
What is an inventory?
When we talk about inventory, we must understand two very distinct things: the counting of items in stock and the valuation of these stocks according to their market value.
Inventory item counting consists of a physical operation during which each item present in warehouses, stores or other storage locations is counted. The main objective is to obtain an accurate and up-to-date view of the actual quantity of items held by the company at any given time.
Once inventory items are counted, inventory valuation steps in to assign a monetary value to these items based on their market value. The goal is to translate the physical quantity of inventory into a monetary value.
It is crucial to distinguish between these two elements, although they are interconnected, as they do not serve the same purposes and can be achieved at different times.
However, counting the number of items you have in stock as well as their accounting valuation can be carried out using different methods.
How to carry out a physical inventory of your items?
There are several methods allowing you to count your items. There is no method that is better than another. Indeed, this will depend on the habits of your company, the activity carried out and its various constraints.
You can opt for partial inventory, also called rotating inventory. It is then a matter of dividing the count of your articles over different periods. So, instead of taking inventory of all of your items, you divide them into categories of items or zoning into sales areas or storage locations, for example. This method has the advantage of being able to distribute your inventory over several days and thus not penalise the activity of your company.
You can opt for the complete inventory, which consists of counting all of your items at once. This method has the advantage of concentrating your human reinforcements over a given period, but requires you to be rigorous in the organisation.
In any case, good organisation is the key to effective inventory. It is often recommended to structure the process by ordering the inventory in a methodical manner. A common approach is to create inventory lists assigned to specific people. Each person is given a list containing the items that need to be counted. This approach makes it possible to fairly distribute the workload while ensuring precise monitoring.
In the case of different storage locations that contain identical products, it is essential to avoid any redundancy in counting items. A common challenge is ensuring data consistency when multiple people are inventorying the same item number. To meet this challenge, the use of management software can be extremely beneficial. This tool is designed to automatically add data collected by different people on the same item reference, thus eliminating the risk of human errors and ensuring increased precision.
Collaboration during the inventory is facilitated by this tool. It allows rapid consolidation of information collected by different teams, thus promoting a consistent and up-to-date overview of stock status.
Finally, it is important to note that legally, you must carry out at least one inventory per year, but that, contrary to some popular belief, nothing obliges you to carry it out by December 31. Indeed, to be reliable, your inventory must be located close to the closing date of your accounting year.
How to value your stocks?
Once you have completed your inventory report by counting your items, you can move on to valuing your inventory. Note that you do not need to define the valuation of your stocks on December 31. So, if you don’t really know how to go about it and you are not completely up to date on these issues, take the time to broach the subject with your certified public accountant (CPA), since the valuation will be definitively established during your assessment. There is no point in doing this in a hurry, especially since it can have a significant impact on your business results.
Several inventory valuation methods exist, and once again, make sure to choose the one that will be best suited to your activity, the most legitimate and above all the most reliable.
We cite below the two most used and legally recognised inventory valuation methods:
- The Weighted Average Unit Cost method: this method consists of calculating a weighted average cost by dividing the total acquisition costs by the total quantities acquired. Generally, this method is suitable for businesses that sell and store non-perishable goods.
- The Weighted Average Purchase Price method: this method consists of calculating an average purchase price based on the purchase prices applied during the various stock entries. This method therefore takes into account the price differences from one purchase to another and values its stocks at each new entry or exit of stock.
How does LUNDI MATIN support you in carrying out your inventories?
Aware that inventory is a complex task that many companies fear, LUNDI MATIN offers companies a tool aimed at simplifying it.
Thus, our ERP facilitates the following operations:
- Create your lists of products to be inventoried, based on their internal references or SKUs, by product categories, by brands, or even by storage location;
- Manage your inventory using an inventory terminal or print paper inventory lists;
- Carry out your inventory using our RoverCash cash register solution.
In 2023, reinvent your inventory!
The end of 2023 offers businesses the opportunity to rethink their approach to inventory. Understanding the different methods of counting items, choosing the appropriate valuation, respecting legal obligations and surrounding yourself with efficient tools will be the key elements to make this mandatory operation a success for your company.
LUNDI MATIN positions itself as a trusted partner to simplify and optimise inventory, allowing businesses to focus on their growth and success. Make the end of this year a step towards more efficient inventory management!
