Annual Stocktake Guide: Practical Steps for Small Businesses

An annual stocktake is not just an accounting ritual. There are practical reasons behind it:

1. It verifies that your system is accurate: Every gap between the physical inventory and the figure in the system points to an error somewhere: a bad entry, theft, or damage that was never recorded.

2. It gives you correct financial statements: The value of inventory at year-end feeds straight into the balance sheet and affects the income statement. An error in the count is an error in your financial reports.

3. Zakat, Tax and Customs Authority (ZATCA) requirements: Zakat is calculated partly on inventory. An inaccurate count means an incorrect Zakat calculation.

4. Purchasing decisions for the year ahead: The count shows what you actually hold, so you only buy what you need.

90% of a successful stocktake happens before count day itself.

One week before: - Close every outstanding purchase order, or document it clearly - Clear out the warehouse and remove damaged and returned goods - Make sure the system reflects the most recent sales and purchases - Prepare count sheets for each section or zone

One day before: - Stop receiving new shipments if you can - Halt sales, or record them with extra care - Split the count team into clearly defined groups - Prepare the counting kit: calculators, a recorder, and enough light

Step one, zoning: Divide the warehouse into clear zones. Start with one zone and finish it before moving on to the next.

Step two, the first count: Staff work in pairs: one counts, the other records. Do not rely on memory. Write the figure down straight away.

Step three, compare against the system: Once counting is done, enter the figures into the system and compare. Any gap above 5% needs investigating.

Step four, recount the gaps: Any item with a large gap is counted again by a different team.

Step five, final posting: Once you are satisfied, record the final figures in the system and document the gaps and their causes.

A variance means the physical figure differs from the system figure.

Common causes of variances: - A wrong entry in the system at receipt or at the point of sale - Returns that were never recorded - Damage or expiry that was never documented - Theft, internal or external - Similar items mixed up with each other

How to deal with them: - Small gap, under 2%: accept it and post an inventory adjustment - Medium gap, 2 to 5%: investigate the last 30 days of movement - Large gap, above 5%: investigate seriously. A systematic error or theft is likely

Once the count is finished, document the following:

• The full count report, with items, quantities and values
• A summary of the variances and their causes
• Adjustment decisions: what will you do about the gaps?
• A list of damaged and slow-moving goods

This documentation matters for: - The certified accountant preparing your annual statements - ZATCA, in the event of any future audit - Purchasing decisions for the year ahead

Instead of one nightmare annual stocktake, consider counting in stages:

• Count 20% of your items every month
• By the end of 5 months you have covered the entire inventory
• Gaps surface early, not at the very end
• The pressure is spread across the team instead of one frantic day

With Snad you can compare the physical count against the system balance immediately after counting, saving hours of manual checking.