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How to Do Inventory Count: 9 Steps for Accurate Results

As a business owner, one of your most important responsibilities is keeping track of your inventory. A physical inventory count is a process where businesses count all of their physical assets and compare them to their records. This article will show you how to do inventory count in 9 steps for accurate results.

What is a Physical Inventory Count?

A manual count of your inventory involves physically going through your retail store and tallying up how many of each product you have. This data can then be recorded in a physical notebook or on an electronic mobile device.

The purpose of a physical inventory count is to reconcile the stock data that a retailer has on paper with the actual inventory in the store. This process helps to ensure accuracy and prevent loss.

How to do inventory count? First, learn the different methods for counting physical stock. There are a few different ways to count your inventory, so find the one that works best for you and your team.

Second, get tips on how to improve the speed and accuracy of your inventory counts. There are a few simple tricks that can help you count more accurately and quickly.

Finally, learn why you should use an inventory counting app to easily count and reconcile your stock. An app can help you keep track of your inventory in real-time and make sure that everything is accounted for.

Even if you’re not too fond of it, inventory counts are a necessary part of running a business. Keeping a close eye on the stock you have in your store and comparing it to what is actually there is important.

Why Does Physical Inventory Count Matter?

By manually counting the stock you have on hand and comparing it to the inventory levels recorded in your POS system, you can identify any discrepancies and take steps to correct them. This process helps ensure that you always know exactly how much stock you have on hand, so you can avoid oversold or out-of-stock situations.

A manual count of your inventory will take into account the amount you have for each variant of your product. This is necessary to get a true picture of what you have in stock.

The accuracy of your inventory management is measured by your shrink percentage, which is the amount of missing stock from your point of sale system.

If you counted 150 t-shirts in-store, but your POS system only has 145 on record, this means that you have lost 5 t-shirts. This means that your t-shirt inventory levels are 96% accurate and that your shrinkage rate is 4%.

Sometimes when you find that there is a difference between the inventory levels that are recorded and the inventory levels that are in store, it is important to reconcile the inventory levels (that is, adjust the inventory levels that are recorded in your POS to reflect what is in-store) to maintain accurately recorded inventory levels.

When to Do a Physical Inventory Count

It’s always a good idea to do a physical inventory count when you’re replenishing your stock. This way, you can confirm that the total number of items (both new and existing) are accurate. Doing this gives you a starting point to compare future inventory checks against.

The frequency of a physical inventory count depends on many factors, including the number of SKUs in your inventory, how many items are sold each day, which physical inventory method you’re using, and whether you use inventory technology such as a POS system and barcode scanners.

Let’s say, for example, that you’re a clothing store with 120 different stock-keeping units (SKUs). It shouldn’t take you too long to tally up those numbers.

So, a monthly physical count of your inventory is most appropriate.

Many retailers have large inventories that need to be checked often, but conducting a physical stock check on all of the items can be time-consuming. To speed up the process, some retailers choose to only count a subset of their inventory (known as a cycle count or partial inventory count).

It’s recommended that merchants do a complete physical inventory count at least near the end of each calendar year. This assures you have an accurate record of your inventory moving into the new year.

How to Do Inventory Count

Inaccurate inventory management is a big problem for retailers. In fact, 63% of businesses admit that their inventories are inaccurate.

Physical inventory count is a necessary step in inventory management because it reconciles the actual stocks in storage with the inventory count on the system. If there’s a discrepancy, it means that there’s an issue. It could either be a loss of inventory or a failure to send out stocks to retail outlets. Stephen Light, CMO and Co-owner of Nolah

Physical inventory count is an important part of inventory management because it allows you to compare the actual number of items in storage with the number of items on your system. If there’s a discrepancy, it means that there’s an issue that needs to be addressed.

It could be that stocks are being lost or not sent out to retail outlets.

Types of Inventory Counting

Let’s examine the differences between various methods of calculating your ROI, and under what circumstances which method is the most effective.

Cycle Counting

As the name suggests, cycling counts are when you only do a partial count of your inventory. You do not do a full count on your entire stock at once, but do it in parts instead.

A portion of the inventory is accounted for monthly, weekly, or daily. It can be based on the types of products, the product groups, or the store/warehouse’s zone.

And for each factor, you may choose a different cycle time. For instance, smaller, faster-selling products should be measured more often.

Advantages of cycle counting

Distributing the cycle counts over the course of the year can be a helpful way to avoid having to do one huge annual inventory.

Cycle counts can be easily planned and executed with the help of an ERP system. The ERP system can create counting orders based on pre-defined rules and stock changes. This makes cycle counts more efficient and accurate.

This approach gives you the ability to generate interesting and detailed reports. You can compare data from different years or periods of the year to identify any trends. This information can help improve your inventory management processes.

You may find that discrepancy is more significant during periods when you sell less and order more. This could be surprising, as you may have always blamed high workload during busy seasons for inevitable mistakes.

Disadvantages of cycle counting

Cycle counts are challenging because there is always a chance you’ll miss an item when creating a count order. The best way to avoid this is to plan carefully.

One of the challenges with cycle counting is that it can become part of the daily routine for employees, which can lead to distractions and the potential for forgetting to count items or counting them twice.

If daily inventory counts are being done, they must be done during store opening hours. If, however, the items being counted on that day are sold or shipped out, they will not be as accurate.

Ad-Hoc Counting

Ad-hoc counting can be initiated by the user as needed and is usually not planned in advance. This type of counting can be quite handy in extraordinary situations.

If you’ve already completed a Zone Count but it fails shortly after, simply create another Order and add your previously-completed items. This is easier than waiting for the system to try again.

Your system should be able to match the counted quantity against what is in the software. Ad-hoc counting is usually used for small warehouse areas or zones that are unscheduled, and it is also known as spot or blind counting.

Counting your inventory on the fly can be a lifesaver when an emergency arises. It can also help you overcome some of the shortcomings of poor planning and preparation. Analyzing the results of your ad hoc counts will help you refine your future cycles.

It’s important to remember that when things go wrong, human judgment and expertise are always needed to get things back on track.

The challenge with ad hoc counts is that employees don’t always do them, even when they know they should.

Tag Counting

Each product must be physically tagged and labeled. The warehouse workers then attach these labels to each product and fill in the required information. During the counting, the staff member records the item ID number, the quantity, and other relevant details.

Some labels have two parts so that another employee can verify the information and, if necessary, make the change on the flip side. After the count is finalized, these labels are placed into the system as journal entries.

With tag counting, you do not compare the data against the system immediately; instead, you count the tags.

The first step is to create a preliminary list of the items and quantities you will be selling. You can then polish this list by adjusting it to account for any sales that have taken place since you began counting. Finally, you can create a counting order and compare it to the tag counting list.

Counting tags can be a huge help for stores that have limited space for merchandise, or for warehouses that deal with a lot of products.

When you have a lot of items and no locations to put them, tags can help you keep track of the counting process. This way, you can see at a glance what has been counted and what hasn’t.

An even better approach to counting inventory is to use scanners. This way, you can scan the tag ID along with the item and quantity, and then just put the physical tag on the item so that it can be recalled later that it has been counted.

The journals will be automatically created, so you don’t need to enter them manually.

Most ERP systems don’t automatically block items from being counted, so you can do counts during regular business hours.

Just keep track of the inbound and outbound movements during the counting period and then adjust your tag count journals accordingly.

After refining the raw data, the corresponding entries will be posted. Then, the count transaction will be recorded.

One challenge of using tags for inventory management is that they may not work for all companies. But if you can implement this method, then it is definitely one of the best options for your inventory. Tags give you visibility, flexibility, and precision.

Possible Reasons for Discrepancies

No matter how hard you try, your stock counts will never be perfect. There will always be theft, damages, and errors.

If you find that your business is experiencing higher than average shrinkage, it’s important to take a closer look at your receiving and storage policies. In some cases, security issues may be to blame. By implementing new procedures, you can help reduce shrinkage and keep your business running smoothly.

If your inventory count shows a shrinkage that is much lower than what was expected, it is possible that an error was made during the counting process. Having an auditor present can help to identify any issues with the methods used or the results obtained.

There are a few reasons that discrepancies can occur during an inventory count. The most common reason is theft, but items can also be lost or misplaced, and mistakes can be made during the counting process. Having robust systems in place can help to reduce the number of errors that occur.

The information that you gain during your physical inventory can be invaluable. It can help you determine if you are dealing with employee fraud, carelessness, or a combination of the two.

It’s important to have an accurate and effective stock count process for many reasons. Businesses are making the switch to cycle counts to improve their inventory management.

9 Steps to Counting Your Inventory

There is no one-size-fits-all answer to the question of how to count inventory for your business; the best way to do it depends on your specific needs and preferences. However, there are a few things you can do to make the process easier: plan ahead, select the right software, and set up barcodes or QR codes.

If you don’t use an inventory app, most of these steps will still apply. They’ll just take more time.

1. Purchase inventory management software.

Without an inventory management system, you’ll have to count your stock by hand, which can be tedious if you have a lot of inventory spread out across multiple locations.

2. Identify all locations for inventory.

List each physical location where your inventory is stored.

3. Make a map of each warehouse area.

Draw a diagram of each storage location to avoid misplacing or forgetting to label any items in your inventory.

4. Write down each inventory item.

5. Categorize items.

Establishing clear categories for your inventory items will help you sort and find them quickly in your inventory management software.

6. Describe items.

To ensure each inventory item is properly accounted for, create a unique description for it that includes its physical location and any essential details needed for barcode or QR code scanning. This will streamline the inventory management process and make it more accurate.

7. Create barcodes or QR codes.

Use an inventory control system to generate barcodes or QR codes. Then, print and test the codes before applying them to your inventory items. This will help you keep track of your inventory and ensure accuracy when counting your items.

8. Organize your team.

Assign roles, train employees on how to use the software, and schedule a date to automate your inventory counting process. This will help ensure a smooth and accurate inventory count.

9. Scan barcodes as you go.

As you add barcodes or QR codes to items, you will scan them into the inventory counting app. And it will count your stock for you.


The physical inventory count is a critical part of any business operation. By taking the time to do it correctly, you can ensure that your records are accurate and up-to-date. Following these 9 steps on how to do inventory count will help you get the most accurate results possible.