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The Best Inventory Reconciliation Guide 2022

Inventory reconciliation is the process of making sure that what you have on hand matches how much has been sold. If you are not using the inventory management method, then there is a high chance that your company will have stock discrepancies. Many things can cause this, but it’s essential to understand why these inconsistencies exist.

Have you ever tried to go into a store and find out what they have in stock? Chances are, the records don’t match up with reality.

As a retailer, it’s pretty much impossible to get your inventory records accurate.

So to prevent discrepancies and losses, you have to reconcile your inventory records against the physical stock periodically. This helps identify any problems that might arise with procedures or theft.

While it is possible to take Inventory without shutting down the store, most people don’t do this because they are afraid of missing out on potential sales. This means that many stores shut down for hours to perform an accurate inventory reconciliation.

inventory reconciliation

Have a business with too much Inventory, but need to keep the store open? How can you reconcile records with stock without closing up shop?

Luckily there is an answer.


Inventory Reconciliation

Inventory reconciliation is the process of counting items and updating your records. It’s also used to find stock discrepancies so that you can address them.

In this post, we’ll examine the steps you need to take when reconciling your stock and offer some helpful tips on making it more accessible.

inventory reconciliation


How Does It Work?

When it comes to Inventory, many factors need to be considered. One factor is the specific details of how you reconcile your stock.

Define Your Inventory

When looking to do inventory, the first step is usually closing the store for a few days. It’s also beneficial if you have time to organize your retail space to be easier when you go through with all of this. Click To Tweet

Having the correct information will save hours when you’re doing stock reconciliation.

Some retailers, in particular, large department stores, will pay overtime to staff during the week. This is less costly than closing up shop and can be more beneficial for the business overall.

Examine Your Records

The next step is for employees to compare the written inventory records with what’s physically in stock. This process can be long and tedious, but it needs to happen so that no one misreads a number on an item.

One way to know the stock number is if it’s serialized. Serialization means numbers on each unit, like a license plate.

Once the Inventory is sorted, you can compare it to see any discrepancies. You should also check for supplier fraud and unlisted products sold on consignment. They could be missing paperwork, lousy math, or human error.

Check for Missing Items

Once you’ve identified the discrepancies, it’s time to figure out what they are. This can be done by going through sales paperwork and finding which items have been overlooked.

When there is a math error in your Inventory, the easiest way to find out what happened is if you can’t account for all of your sales receipts. If that’s not it, then either someone stole from you or one of your suppliers has been up to no good.

When inventory numbers don’t match up, the discrepancy is called shrinkage. It’s typically expressed as a percentage by using this formula:

The National Retail Federation calculated that the average retailer lost 1.44% of their total sales to inventory shrinkage in 2016.

This number changes depending on your industry, but if you’re losing more than twice this amount, it’s time to take action.

Check Differences

If you want to know if any of your employees are stealing from the company, start by interviewing inventory workers and work outward. Start with those who have access to goods in storage or on the sales floor before ending at managers.

But tracking down the culprit is not a guarantee, and even if you manage to track them down, it may be difficult or impossible to stop their actions. You might have to live with unexplained shrinkage as an unfortunate fact of life.

Make Sure Your Records Are Recent

Regardless of the reason for your inventory loss, you need to reconcile your stock records so that they accurately represent what’s in store. You can do this by creating a new reconciliation statement based on accurate figures.

If you’re using Excel, there’s no way to keep track of your Inventory in the same spreadsheet automatically. You’ll have to update each item when they change manually.

If you are using a current inventory or retail management platform, the entire process of reconciling your records is simple. All that needs to be done is update items in your system.

When you use this accounting method, it’s best to create a ledger with the starting balance of your Inventory. This is so that they will be accurate when you account for all transactions.


Use Cycle Counting

inventory reconciliation

You don’t have to close your store’s doors every few weeks so that you can account for all of the Inventory. Cycle counting is a process that breaks down larger tasks into smaller, more manageable steps, which make it easier and less time-consuming.

With inventory management, the traditional method of counting all your products and then adding up the total is no longer effective. Instead, you should group similar items and do a more detailed count on those groups.

There are many ways to count Inventory, but one method will make the process much easier.

The ABC method

The ABC method is a system for classifying your products. Your A group consists of the top 20% best-selling items, B and C groups comprise 60% mediocre sellers, and then you have that last category with the bottom 20%.

The key is to find the essential items and then check on them more often than your other products.

To avoid theft and maintain accurate Inventory, instruct employees to count the number of items at the start or end of each day.

The Seasonal Tactic

If you’re selling seasonal goods, it’s essential to focus on them during their prime sales periods. Instead of counting summer clothing in December when the weather is cold, and nobody wants clothes for sale, why not trust items that are moving right now?

You can fix errors and manage inventory levels with this new system because the items that sell best will be constantly replenished – otherwise, you’ll end up running out of your best-sellers right in the middle of a season.

The arbitrary method

Some retailers will take an inventory count of what they have on the shelves, which is not always accurate. It’s better to sort by specific departments or suppliers, so you know that everything matches up.

One of the best ways to start a significant reorganization is by working on one corner and then moving from there. This way, most of your store will remain operational throughout.

While the best way to save on time and labor expense of inventory reconciliation is by using a modern system, it’s essential that this new tool can update in real-time. With today’s technology, employees can scan an item, so they don’t have to worry about updating one spreadsheet at a time.


4 Basic Strategies to Reconcile Inventory

inventory reconciliation

Organize Yourself

Keep your store clean and tidy. Having an uncluttered space will make it easier for you to find the products already on shelves, in stock rooms, or being sold.

Make sure you do the following before reconciling your Inventory:

  • Make a map of your store and note where you have racks, shelves, or other fixtures.
  • Label boxes and shelves with transparent labels to find the correct box or frame more easily.
  • Make sure that everything is where it belongs.

Use Smart Technology

With inventory reconciliation, it’s easy to make mistakes. The best way to avoid this is by using the right technology.

Avoid counting and auditing your stock with pen and paper. To get the best results, use a mobile app like Scanner that scans each product’s barcode and records it into an easy-to-read CSV file.

With the help of a cloud-based POS system, retailers can now track sales and integrate Inventory with the automated point of sale systems. With these types of computerized tracking methods in place, theft becomes much more difficult to commit.

A comprehensive POS system will come with a handheld scanner that can scan an item and log it into your Inventory, as well as a shelf scanner to make sure the product is in stock. The cashier at checkout would then scan any items from this device.

So what does this mean for you? This means that your store can run more smoothly, reduce mistakes and stay on top of its stock.

The best example of this is a small shop in Texas called Mom and Popcorn. They used to manage their Inventory by hand, but they finally switched to an automated system.

Mom and Popcorn owner Dave Wilson says that having all their employees use the same computer system saved tremendous time.

“Previously, we had to go to the front of the store to get a physical count of Inventory by site, record it by hand, and then look at a paper catalog to order via the phone from the supplier. By adding this technology, we’re able to save so much time and money,” he said.

We’ve gotten rid of around 8-10% of our Inventory that wasn’t selling, and that has allowed us to bring on another 100 items that are selling better.”

Maintaining Inventory

Maintaining Inventory is a little bit like accounting. You have to keep up with the numbers and reconcile your stock regularly, or else you won’t be able to adequately address discrepancies, errors in calculating shrinkage rates, etc.

The longer you wait to count your Inventory, the more difficult it will be for you to track down where things went wrong. If we only conduct a stock-take once per year, our reports will have missing data and make root cause analysis much harder.

To solve this problem, you need to do inventory reconciliation on your Inventory. Cycle counting is already good enough if done regularly.

Some people prefer inventory counts, but it’s important not to forget about counting all your items at least once a month or every quarter.

Former Inventory Reconciliation

Once you’ve compiled a few reports, it can be helpful to take time and examine the numbers so that you see patterns. This will help prevent future losses or discrepancies.

Your inventory practices over time will also tell you if they are working. For example, is the number of discrepancies decreasing or not? The only way to find out is by comparing past reports with current ones.