Why You Should Be Taking a
Year-end Physical Inventory

Depositphotos_12153244_s-300x199Inventory – the Good, the Bad and the Ugly

Taking a year-end physical inventory takes time, resources and can interrupt your daily business activities. Finding time at year-end to count all your inventory is not easy. However, there are many reasons why you should make the time to take a physical inventory at year-end.

The Good

  • You will know exactly how much inventory you have on hand. Knowing how much inventory you actually have instead of estimating (guessing) can help you with your business and tax planning and cash flow.
  • It’s an opportunity to take a look at the layout of your warehouse once a year and make sure everything is structured in an efficient manner. No different than organizing your kitchen cabinets, organizing your inventory saves time and resources.
  • Helps you to understand inventory management as a priority.
  • In the case of an insurance claim it’s important to have accurate amounts to document any inventory losses.

The Bad

  • You might realize you have 20 years’ worth of a particular slow/non-moving items on hand and maybe it’s time to stop ordering those items.
  • It’s an opportunity to compare what you think you have to what you actually have and maybe find out; you have employees taking inventory, sending and/or receiving the wrong quantities, your internal controls are not working or you have too much or too little warehouse space.

The Ugly

  • Your lender does the count as part of a loan collateral audit and you find out you don’t have enough inventory as collateral to support your current borrowings.
  • You may realize your company is not nearly as profitable as you might think.
  • You may find you have inventory on hand that is so bad/hazardous/dangerous that it should have been disposed of years ago.

Make the most of your year-end inventory process. An accurate inventory count will only help you understand your business and potentially identify areas that are working well, and or those areas that need improvement. GKG is here to help. We can guide you on how to put together an efficient inventory as well as perform our own test counts to help ensure everything goes well.

Paul Conniff, CPA, CGMA