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Doing Inventory: How to Take Physical Inventory

November 22, 2019
Table of Contents
Bar inventory management software

In order to ensure your business's success, managing your inventory regularly and accurately is key.

Not keeping track of what you have in stock and what you sold will prevent you from making smart decisions.

That's why we'll walk you through how to do a physical inventory in this post.

That'll make sure your inventory decisions are grounded in cold, hard data.

Why Inventory Is Important

Low inventory levels can lead to missing out on sales and create unhappy customers. High inventory levels require more storage space and can lead to waste like expired goods.

All of these problems eat into your bottom line and keep your bar from being as profitable as possible.

Doing Inventory: What Is a Physical Inventory Count?

A physical inventory count is the exercise of counting all the products and materials you own. Counting your inventory requires time, focus, and an attention to detail. Many business owners find it difficult and tedious. Inventory purchased during the time must also be considered.

Every item must be accounted for both at the beginning and ending of the time period being measured. This is known as periodic inventory. That's opposed to perpetual inventory. Which is an automated solution that adjusts inventory with every addition and subtraction. In real time.

Perpetual vs. Physical Inventory

Perpetual inventory is a real-time, continuous count of inventory. While physical inventory is a manual and periodic count. Both inventory management techniques have pros and cons. Deciding which to use depends on your individual business needs and capabilities.

Perpetual inventory relies on technology and integration into a bar pos system. Or some other inventory management platform. It tracks all sales and orders and gives you accurate reports whenever you need them. However, it requires an investment in technology. And training on how to use the tools, along with a long and intense setup period.

Physical inventory does not rely on technology, but it can be used to speed up the process and keep track. There is no investment required for physical inventory and it is the most common method. However, it takes much longer to count inventory as you'll manually do it at least twice a month. It is also more susceptible to mistakes since human error is involved.

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How to Take Inventory: Four Solid Tips

We'll use a bar as an example. Here's how to take a physical inventory:

Break It Up Geographically

Start with a specific area. In our case, we'll start with the front bar. Then slowly make your way to other areas. Like the back bar and cellar or stock room. If you break your business into areas, the whole thing is easier to tackle.

It may help to make a literal map of your store and cross areas off as you go. Having a map also makes it easier to assign sections to individuals for the inventory count.

Consider Cycle Counting

If your business is particularly large, try doing partial inventory counts repeatedly. Instead of one enormous inventory count all at once. 

A partial inventory count may be the inventory in one room. Or it may be the inventory of one only type of product. For bars, let’s say that’s beer. It’s a single piece of the inventory puzzle. And if you do cycle inventory counts consistently, you’ll have a running inventory of everything.

And you don’t have to shut down for a full physical inventory.

Use Inventory Scanners

When you take physical inventory using a pen and paper, you’re doing double duty. 

First, you’re writing down the inventory while taking it. 

Then you’re transferring that information into a computer.

But if you use a handheld scanner, it dramatically speeds that up. An hours-long slog through inventory becomes a succession of quick beeps and boops.

Take Inventory at Strategic Times

Doing inventory manually is a lot of work. That’s why you should minimize it.

Take inventory at the times when your inventory is historically its lowest. It's less work.

Typically that’s around the end of January or mid-summer. But it depends on your business. Consult your historical inventory data and you’ll find the right time.

Pre-Label Shelves, Boxes, and Bins

On the counting day, your inventory counters should be counting. Not wrestling with organization. Take care of all of that up front.

First, walk through the storeroom and make sure everything is in its right place. A regular cleaning and straightening. Then identify all the areas you’ll be counting and make sure it’s clear as day what’s in them.

You’ll be surprised how many stray boxes and items add up during inventory counts. Especially if they’re not labeled beforehand.

Consider All Your Pipeline Inventory

Not all of your inventory is physically present in your warehouse. Some of it is on its way. Consider your lead time and all the pipeline inventory that you already own but down physically have yet. That’s part of your inventory, too.

Keep Track of Received Inventory

Make sure to keep track of products that you receive from your distributors in between inventory periods. That will be necessary when you need to figure out your bar’s inventory usage later on. For a full step-by-step of calculating inventory usage, check out our blog post about how to calculate inventory usage.

Beverage inventory software