4 Keys to a Successful Year-End Inventory Process

Accurate year-end inventory counts aren’t just about generating reports and preparing financial statements for the bank, your investors and your accountant. Year-end inventory is about creating a snapshot of what you have so you can fulfill orders, understand sales trends and deliver the best possible customer service. It’s about detecting and addressing shrinkage, which costs manufacturers billions of dollars each year.

If you don’t accurately reconcile your inventory, the problems go deeper than reports and financial statements. The sustainability of your business could very well be at stake. Here are four keys to a successful year-end inventory process.

1) Proper Staffing

Year-end inventory counting isn’t something a couple of people can do in the office on a Friday afternoon. We recently supervised an audit that took four days for 16 people to complete. Make sure the process is properly staffed to minimize potential business disruption.

2) Clean Areas

Inventory storage areas in your warehouse need to be clean and items neatly organized. Aisles and shelves should be clearly labeled. Remove any loose items. This not only reduces the risk of inaccurate counts, but also helps you save valuable time during the counting process. If you find old, obsolete or damaged inventory, bring it to a manager’s attention.

3) Consistent Process

Inventory counters should receive detailed instructions on your counting process to ensure consistency. Are you counting top to bottom? Left to right? A to Z? Where are products being placed after they’ve been counted? Will you have teams, with one person counting and the other recording the count? How are counts being communicated and recorded? You should also test your process to ensure accuracy and efficiency.

In addition to the actual counting process, set the ground rules for breaks, meals, checking smartphones, etc. You want to minimize distractions, but you also have to recognize that year-end inventory counting is tedious, often draining work. Workers deserve breaks, but they need to be organized and accountable.

4) No Movement

During the counting process, nothing should be entering or leaving the warehouse. Shipping and receiving are put on hold. Ideally, inventory accounts can be done during off hours, but you might have to temporarily suspend sales and order fulfillment while counting is happening. This is why proper staffing, clean areas and a consistent process are critical. All will expedite the counting process so you can resume normal operations as quickly as possible.

After the Year-End Inventory Count Is Complete

The physical count should be compared to the computer system count. A variance report should be generated, and variances must be researched and resolved so you can reopen for business. If you reopen before variances have been resolved and realize your inventory is short after you’ve sold products, the issue will never be resolved.

We at LFL Veritas serve as auditors for our clients and observe the year-end inventory process as part of that audit. We observe employees as they count. We make sure counts are correct and verify that the inventory is actually there. Our job is to make sure you follow the process as you said it would be carried out as part of your year-end financial audit.

If you need help creating, improving or executing your year-end inventory counts, speak with your accountant for assistance. Remember, the importance of an accurate, efficient year-end inventory process cannot be overstated.

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