What is an Inventory Audit?
An inventory audit uses analytical procedures to check a company's inventory methods and confirm if the financial records match the actual count. While counting all your stock items can sound mind-blowing, with the right tools, an inventory audit can be effective and valuable – not tiring.
Why Conduct an Inventory Audit?
An inventory audit ensures there is accuracy between actual stock quantities and your financial records. Regular audits increase your understanding of stock flow, help calculate profits and losses accurately, and keep your business running smoothly. While a manual audit is possible, the time commitment can discourage you from doing it regularly. However, inventory management software can automate the process and increase accuracy.
Here are some benefits of Inventory Audits:
- An inventory audit helps you know what is missing as you compare your financial records with the physical count, you can identify missing items. This can prompt further investigation, which helps determine if the items were damaged, lost, or stolen.
- An inventory audit will enable you to assess the overall inventory status. Regular audits will show if they're specific items that are consistently understocked or overstocked. You can also find out which supplies are not being used and taking up storage space.
- An inventory audit can help you budget – once you have an understanding of what items you need the most, it becomes easier to budget. Conducting regular audits will prevent spending money on items that are always in surplus. An inventory audit will help you determine whether to discontinue items and direct funds to items that are always out of stock.
- Inventory Audits will help determine the effectiveness of your inventory procedures and help reveal issues within your company's warehouse. Whether it's in the receiving area or actual packaging. This can help in detecting potential inefficiencies in the inventory procedure.
- An inventory audit can help you regulate the amount of stock you have at a particular point to ensure high profits. Unnecessary overstocking can result in poor cash flows and financial loss. A regular inventory audit can help remedy this. Similarly, it helps identify any obsolete inventory in stock or orders incorrectly supplied to customers, which can lead to financial loss and damage the company's reputation.
- An inventory audit helps reveal any failure caused by a lack of security which can result in loss, theft, or misappropriation. It also helps to account for any losses resulting from wastage, damage, or dormant stock.
To carry out an inventory audit, follow these steps;
- Prepare a checklist that includes all the inventory and assets in your company. Your inventory software could help you do this.
- Note all the key details of the inventory and assets. An asset tag, barcode, or QR code could help better.
- Take on what you can. If your company has a lot of inventory, you can take it piece by piece.
- Record the data. Once you have the results of the inventory audit, you can update the inventory management system.