Streamline Your Stocktaking with an Effective Inventory Management Process

Before diving into the details of different inventory management processes, let’s clarify what inventory actually means. In essence, it’s the process of compiling and updating a company’s full list of assets. This can include:

• Land and buildings
• Financial assets like cash, investments, liabilities, and outstanding receivables
• Tangible assets, such as equipment, stock, and other resources

Inventory updates are typically done at a specific point in time, often aligning with the company’s financial reporting cycle.

Legal Obligations in the UK

In the UK, the obligation to carry out an inventory comes under company accounting regulations. Businesses subject to double-entry bookkeeping must conduct regular stock takes to ensure their financial records accurately reflect their assets and liabilities. This is a key requirement for producing compliant financial statements and helps to provide transparency in business operations.

However, some businesses are exempt from this obligation. Sole traders, freelancers, and small businesses that fall below certain turnover thresholds—those using simplified cash basis accounting, for instance—may not be required to complete a formal inventory.

That said, even when it’s not a legal requirement, maintaining an up-to-date inventory can still be a good idea. It provides better visibility into your businesses resources, supports smarter planning, and ensures your inventory management process is both efficient and accurate.

In legal contexts, such as the UK’s accounting standards, the inventory process refers to the methods available for conducting a physical stocktake. These processes outline not only when inventory should be taken but also how it should be carried out and which values must be recorded.

The inventory process serves two main purposes:

• Timing the Stocktake: Determining the most appropriate time to carry out inventory checks, whether that’s at year-end, periodically, or continuously.
• Carrying Out the Stocktake: Establishing clear procedures for recording and verifying assets, ensuring accuracy and compliance.

In addition to legal requirements, your business can adopt specific strategies to make its inventory management process more efficient. While these aren’t dictated by law, they’re often essential for improving accuracy and streamlining operations. In the following sections, we’ll explore the four main types of inventory processes and their unique advantages.

There are four main types of inventory management processes, each designed to suit different business needs and operational contexts. Let’s explore these methods and how they work:

1. Key Date Inventory

This is the simplest and most traditional method. The inventory is conducted on the balance sheet date—typically at the end of the financial year, which often aligns with the calendar year. Businesses have a window of up to 10 days before or after this date to complete the stocktake.

Common in retail, where physical counts were historically done by closing stores for a day or more.

• Advantages: Easy to align with annual financial statements.
• Disadvantages: Can disrupt operations during a busy time, especially in industries like retail where year-end sales are high.

2. Postponed Inventory

With this method, the stocktake is conducted within a flexible time frame—from three months before to two months after the end of the financial year. However, businesses must calculate the stock values back to the balance sheet date to ensure accuracy.

Ideal for companies that face staffing or operational challenges at year-end.

• Advantages: Reduces pressure to conduct stock takes during peak periods.
• Disadvantages: Additional work is required to reconcile the inventory values to the balance sheet date.

3. Perpetual Inventory

Perpetual inventory is the most dynamic and flexible process. Instead of conducting a single physical stocktake, inventory levels are updated continuously through a stock ledger, which records all receipts and issues.

This is often managed digitally using inventory management software. However, a physical stocktake is still required once a year for control purposes, to reconcile any discrepancies between recorded and actual stock.

• Advantages: Provides real-time inventory data, reducing the need for large-scale physical counts.
• Disadvantages: Maintaining accurate records requires consistent input, which can increase administrative workload without proper software.

4. Inventory Sampling

For businesses with large or complex inventories, manually counting every item can be impractical or close to impossible. Inventory sampling uses statistical methods to estimate total stock based on random samples.

This is particularly useful for goods that are difficult to count or for high-volume stock.

• Advantages: Saves significant time and effort, with minimal disruption to operations.
• Disadvantages: Requires reliable statistical tools, and discrepancies beyond 1% are not permitted under accounting standards.

Choosing the Right Inventory Process

Each of these methods has its pros and cons, and the best option will depend on your business size, industry, and operational requirements. Leveraging tools like inventory management software can help streamline whichever process you choose, improving accuracy and efficiency.

1. Book Inventory

This process tracks non-physical assets, including:

• Credit balances
• Debts and outstanding receivables
• Investments and other financial assets

Book inventory focuses on documenting these intangible items to provide a complete picture of the company’s financial position.

2. Asset Inventory

Asset inventory is all about tangible assets, such as machinery, vehicles, and other work equipment. Beyond just confirming their presence, this process also records details like:

• Age of the asset
• Current value

Useful life for operational and financial planning

3. Physical Inventory

The most familiar type of inventory process, physical inventory, involves counting, measuring, or weighing goods and consumables. This method is typically used for stock items like raw materials, finished goods, and supplies.

In certain cases, estimates can be used, but only when precise measurement is impractical (e.g., liquids in large storage tanks).

Each of these processes plays a crucial role in maintaining an accurate and reliable inventory management process, ensuring all asset types are accounted for effectively.

An accurate inventory management process is key when it comes to keeping in line with proper accounting standards and ensuring business reliability. In the UK maintaining an inventory is about meeting legal or tax requirements but it also builds trust with business partners. It provides them with a clear picture of the company’s financial health and liquidity, giving them the transparency needed to build trust. Beyond compliance, a well-organized inventory simplifies planning and scheduling for internal operations.

Streamlining Inventory with Specialized Software

• Track asset locations, assign responsibilities, and monitor conditions in real time.
• Access inventory data from anywhere using intuitive tools like web apps.
• Store data securely in the cloud, ensuring seamless access across multiple work locations.

Managing IT Assets

Timly isn’t just for physical inventory. It also simplifies the management of IT assets, including virtual resources like software licenses. These can be easily assigned to specific hardware or workspaces, providing a comprehensive view of both physical and digital assets.

For even more efficiency, tools like Lansweeper can automatically scan the company’s network to detect hardware and software components. Once identified, these assets can be seamlessly transferred into Timly, streamlining the inventory process and ensuring no item goes untracked.

The approach you take to your inventory management process will depend on the type of items you’re tracking. Regardless of the method, it’s crucial to define the process clearly to minimize errors, especially when temporary staff are involved.

Conventional Stocktaking

For traditional inventory, a division of labor is often the most efficient approach. Typically, two people work as a team:

• One acts as the counter, collecting data on items.
• The other serves as the recorder, noting down the data.

To maintain consistency, specify a recording direction (e.g., left to right, top to bottom).

Leveraging Inventory Software

Using inventory management software can simplify the process. Instead of manually recording data, staff can scan barcodes attached to assets, making the process faster and more accurate.

For employees working remotely or off-site, software with a self-inventory feature is invaluable. Tools like Timly allow users to register work equipment directly on location, ensuring real-time updates across the system.

No matter which inventory process you choose, software can make planning and execution far more efficient. At a basic level, businesses often use tools like Excel to create and manage inventory lists. However, specialized inventory management systems take it a step further by:

• Generating inventory lists directly within the software.
• Offering an inventory mode for stocktaking, which allows users to simply scan barcodes for a legally compliant record.

With the right tools, businesses can eliminate much of the manual effort typically associated with inventory, improving accuracy and saving time.

The right hardware can make your inventory management process smoother and more efficient. Here’s what to consider:

Mobile Devices

Handheld Scanners

If your inventory involves barcoded items, handheld scanners can speed up the process considerably. They provide fast and accurate data capture, ensuring each item is correctly logged.

Registration Stations

Smartphone Apps

Smartphones with cameras can function as barcode scanners, eliminating the need for separate devices.

Web apps allow staff to use their own devices without installing additional software, as data is stored temporarily and synced securely to the cloud.

A well-planned inventory process is the foundation of good stock management. Software-based systems, like Timly’s inventory management app, streamline this process by keeping asset locations and conditions up to date in real time.

With tools like self-inventory and mobile-friendly web apps, businesses can save valuable preparation time and simplify implementation—helping ensure every stocktake is accurate and efficient.