4 Tips for Year-End Inventory
If your small business has inventory, the end of the fiscal year is a busy time for verifying that the inventory you think is in your warehouse (or garage, retail store, or other location) is actually physically present.
Here are four tips to help ensure that your year-end inventory process goes as smoothly as possible and takes advantage of the latest tax strategies.
Tip #1: Make sure your counts are accurate
It’s not the most exciting job, but counting your physical inventory—and counting it accurately—is absolutely critical. Don’t skimp on this effort because any mistakes are likely to cost you dollars and time.
One smart method is to have one employee count the stock while the other records the numbers on reporting forms. Having a team of at least two people is helpful because they’ll also need to count the number of damaged items and products that are incorrectly labeled, packaged, or shelved.
Tip #2: Make strategic reporting decisions
After conducting the physical inventory and reconciling those numbers against the figures in your inventory system, you may still have unexplained discrepancies. If that’s the case—and especially if it has also been the case in years past—it’s time to closely review your inventory practices to try to identify why your numbers aren’t matching.
You will also need to update the inventory numbers in your accounts to match the physical realities in your warehouse but you will also need to confirm your costs.
Tip #3: Pick the right strategy for recording inventory value
How you manage your inventory affects your taxable profit in ways you may not realize. For example, if the purchase prices for your goods change over time, you’ll need to confirm your receiving costs to ensure your calculated value is accurate and follows your policies.
There are multiple systems for handling price fluctuations over time. You could, for example, average the cost of goods sold, or you could track every unit sold. There’s no one best process, and the system you choose will affect your taxes and finances. If you aren’t sure which system is right for you, that’s another reason to bring in a tax expert to help.
Tip #4: Update your inventory management system
If you struggle with any part of the year-end inventory process, it’s time to look at implementing an inventory management system, or updating the one you’re using now. Inventory management should not be a huge hassle, and it should not involve yearly mistakes that take hours to identify and correct.
The latest inventory management systems can track your inventory so you always know how much of every item is in stock. You can receive automatic alerts when you need to resupply, reducing guesswork and preventing shortages. You can also keep better track of which products are selling best and which items are stolen or damaged most often, so you can address those issues. Some inventory management systems also integrate directly to your accounting software, so you will always have the inventory information you need each month..
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BST offers a broad portfolio of accounting and auditing, tax, consulting, and wealth management services, as well as valuation, forensic accounting, and litigation support. Our Virtual Accounting Solutions (VAS) offers outsourced accounting and best-in-class technology solutions to help businesses manage inventory and take advantage of the latest tax strategies to promote growth.