The big end of year (EOY) inventory count fills most handmade sellers with dread and anxiety. As it can take weeks to account for every button, clasp and sq inch of fabric, for small self employed businesses this means effectively closing their business during stocktake time.

While the EOY count is unfortunately a necessity for businesses using Periodic Inventory systems like Excel, you'll be glad to hear it isn't the only option available. Perpetual material inventory systems like Craftybase are instead designed to track the changes in your stock levels constantly through the year using constant updates of stock levels. Due to this, if you are tracking accurately it's technically not required to do an annual stocktake of your entire material inventory which can be a massive time (and stress!) saver for you and your business.

A big word of warning before we continue: relying completely on an automatic system to report on your stock levels for tax is not a good idea if you aren't fully aware of the accuracy of your stock adjustments during the year. If you are going to try and drop the EOY count, it is essential to ensure that your tracking is very accurate throughout the year, as small errors can add up if not watched closely - this is particularly true when accounting for material usage and wastage. With this in mind, dropping your EOY count may only be realistically achievable in your second or third year of using a perpetual tracker, as it can take a little while to achieve the accuracy levels required.

The Cycle Count

The best way to improve your accuracy is to use an approach called the "cycle (or perpetual) count". This method involves regularly counting a small sample of your stock and comparing it to your current records. Any discrepancies can then be instantly adjusted or investigated to find out the cause.

How often you choose to cycle count is completely up to you: in large scale manufacturing it is typical to do daily counts, however for smaller craft operations it may be a case of bi-weekly or monthly.

The sample you select could be a completely random set of materials, or you might like to prioritise materials with high usage / cost. Alternatively, physical locations may work best if you have your stock arranged in an orderly way - you could work from top to bottom of your storage cabinet, for example. We cover the sampling methods you can use for cycle counting here.

Whichever selection method you choose, the goal is to work regularly through small groupings of your entire stock during the year so that a big one-off count is not necessary at end of year.

Keeping additional records of your cycle counts is a good idea if you use a bookkeeper or accountant, as it will give them confidence in your tracking accuracy.

If you do find a large discrepancy between your actual count and your recorded stock on hand, it's wise to investigate the cause of this rather than just make a manual adjustment to your records: is it due to your manufacture usage records being over or under estimated, or are you not measuring wastage correctly? Once you have identified the issue, you can then amend the original manufacture records and recipes so that working forward your counts will be more accurate.

Once you are at a stage where your cycle counts are returning accurate numbers, you can then decide to decrease the number of counts you do during the year if you feel that the system is now accurately handling your stock usage for you. If you find the opposite, doing more frequent counts until the cause of the issue is found is often a good strategy.

Tips for getting into the cycle count groove

  • Set a calendar alert or reminder at a specific time each week or month and make sure this time is reserved.
  • Start your cycle counts by choosing small samples, if you feel you can handle more build up from there so it doesn't feel daunting.
  • Choose a typically quiet time where distraction is at a minimum - e.g. the end or start of the day can work well.
  • Find another friendly crafter to use as a "stocktake buddy" - set up a regular Skype call and do the mini-count at the same time to both keep you in the habit.

Want to learn more about handmade inventory management?

It's a fact: inventory tracking improves both your business and your bottom line. Our eBook introduces online craft sellers to the absolute basics of inventory in an easy to understand way, giving you the knowledge you need to finally get your inventory, costs and taxes under control.

Topics covered include:

  • Reasons why inventory tracking is essential for handmade business
  • Inventory Assets vs. expenditures
  • Supplies and materials
  • Direct and Indirect Expenses
  • Methods of Valuing your Inventory
  • Perpetual vs. Periodic Tracking
  • Stocktaking Strategies

Download our free eBook now ยป