Christina Shull
Owner of Integrity Piercing
One of my favorite parts about December is counting every little piece of jewelry in my studio for end of year inventory. For most people, that line was read in a sarcastic tone. In my case, it is true and should have been ended with an exclamation point and been followed with a smiley face. While this article will probably not have any effect on the enthusiasm you may or may not have while counting your jewelry, I do hope to share some tips that could make the experience a little smoother and hopefully more pleasant for you.
I would love to address why end of year inventory is so important and the impact it has on your financial statements and taxation. You are spared from that info in this particular article. It would be a very long article otherwise, maybe even a small book, and I do not want to bore you to death if you are not a current or future business owner. If you are interested in learning more about the administrative aspect of piercing, stay tuned in January for the debut of my blog “The Business of Piercing” which will be filled with plenty of information on the business side of the industry: taxes, accounting, employee relations, legalities, financial statements, and all the aspects that go into keeping your business profitable and compliant with local, state, and federal regulations. For now, let’s delve into how to make your end of year inventory count as smooth as possible.
There are many reasons for needing an accurate count of your inventory, with the most relatable reason being that none of us want to pay more taxes than we absolutely have to. An accurate count can significantly reduce the chance that you will overpay for taxes related to jewelry investments. Shrinkage, or losses, which can happen in our industry fairly easily: jewelry being dropped on the floor and rolling into the abyss, small parts easily end up in the sink drain of the processing room (along with almost every threaded or pin taper you once had), and the often overlooked comp jewelry that a client received as a nocharge upsize/downsize/“oops, the piercer grabbed the wrong size/ color/etc.” An accurate inventory count at the end of the year allows you to properly determine your Cost of Goods Sold (COGS), which directly affects the amount of tax you will pay.
Planning your end of year inventory count is the best way to minimize stress and increase accuracy. Inform your staff members in advance about inventory planning and give them clear and specific instructions, preferably in writing. During your planning, consider the following:
When will the count be done? Ideally, inventory counting will be done when the studio is closed, or at least during a day when business is expected to be slow. I personally opt to perform the count on a day my studio is closed. It is worth it to me to pay a little bit of overtime in return for a count that is done in a shorter period of time and is more accurate when there are no interruptions from clients or vendors.
Who will be counting the jewelry and what will they be counting? In my two person studio, we split the responsibility pretty much down the middle. My staff member counts and records the jewelry in the front of the studio – everything in the display cases and the bead totes used to store backstock jewelry. I count and record the jewelry in the piercing room, clean room, and any potential defective jewelry that has not been replaced yet.
It is uncommon to have jewelry that should be excluded from the inventory count, but there are a few situations where it can happen. Those situations should be explained in advance. For example, the majority of the jewelry I have on display are items that I would sell if needed, such as jewelry in “body bits” that is switched out periodically or a threaded end that I would sell if it was the last in stock of its color, size, style, etc. However, my anodized captive display has the rings stabilized with glue inside of a shadow box. Upon assembly of that display, I knew the rings would never be sold in the future and they were re-categorized from Jewelry and Aftercare (COGS) to Displays and Decorations (Expense). Another studio I worked at years ago had jewelry on display that was not going to be sold – discontinued “collectors’ items” and antiques. Those items needed to be excluded from the jewelry inventory because they were not items for resale.
What can you do to prepare? Pre-counting preparation can make the inventory count go smoother. The day before the count, make sure that jewelry is organized and items are in their designated places. If you have recently received a jewelry order, have all jewelry checked in, processed, and put away. Every studio seems to have a place, if not many places where jewelry just ends up; a special cup or drawer can be found in almost any room that often contains random beads, balls, and o-rings. Defective jewelry has a habit of ending up in a variety of different locations. Check for all of these miscellaneous pieces of jewelry and put it all away where it belongs.
How will the count be recorded? If you have a Point of Sale system, you may have inventory worksheets available that are ready to print and go. I just recently discovered that QuickBooks has printable inventory sheets that I am very excited to use this year! (Reports>Inventory>Physical Inventory Worksheet, for those who are interested). If your POS program does not have dedicated inventory sheets or if you choose not to use them, you can print an item list and use that to record your count. Many studios use the same inventory sheets that they would when counting stock items before placing an order. Blank paper can work as well, although the less detailed the documentation system, the easier it can be to overlook or miscount items.
Marking items that have already been counted is important. Keeping track of what has and has not been counted is not as simple as it may seem. For example, I have multiple threaded end options in one display frame and when following inventory sheets, they are far apart alphabetically on the sheet. In this case, I have used something to mark the rows or particular items that have already been counted; masking tape or little strips of post-it notes have both worked well for me. Sometimes I have drawn a quick diagram of the display and what is in it, crossing off pieces as they are counted. It may be easier for you to remove the jewelry from the displays entirely and replace them later. This provides a perfect opportunity to refresh displays for the new year. The important part is finding a method that will easily communicate to all staff members what has already been taken care of.
Double counting is suggested to ensure accuracy and this is when having a POS definitely comes in handy. I consider my POS stock numbers to be fairly close to accurate, with a physical count done to confirm. If the physical count matches the amount in the POS, I consider the single physical count to be fine. If the physical count does not match the amount in the POS, I double and sometimes triple or even quadruple check the physical count before I alter the amount in the POS. Double-checking is crucial when we have large quantities of small items that can be found in many locations. For example, 14g 2mm threaded flowers in my studio can be found in numerous places: a frame that has the more decorative 14g threaded options, in a few display body bits, in the middle of an assembled industrial barbell, on the top of some displayed navel curves, in one of the bead totes for backstock items at the front counter, and with flower navel curve posts in the piercing room. With 6 different places to find one particular item, it can be easy to miscount.
Employees need to be aware of what is counted separately versus together. You need to have consistency between how an item is entered into the POS or otherwise introduced into inventory and how it is counted. For instance, if a double gemmed navel curve was entered into the POS with the top gem and gemmed post being received as a single item, staff members need to consider both components when counting inventory. If there is a gem curved post without a top (usually because individual gems were out of stock when one was needed), this needs to be documented. Failure to document this would result in an assumption of the whole piece, which would lead to a lower COGS and result in paying tax on an asset you do not actually have.
Once you have completed your end of year inventory and extracted the information that you need for filing your taxes, don’t toss the inventory sheets! End of year inventory counts will serve as helpful tools for a variety of things including documentation of the actual inventory count (really useful if you are unlucky enough to be audited), your starting inventory amount for the next year (which you will use along with your next end of year inventory and purchase receipts to determine your COGS next year), and is very helpful when making adjustments to desired inventory stock numbers.
Now is a good time to start preparing for your year end inventory count. Create or update existing inventory sheets, draft a protocol for inventory counting, pick a day and time for the count and schedule some staff members specifically for this project, research additional tips and tricks to make your inventory count smoother. Most importantly, if you don’t want to pay more taxes than you absolutely have to, start getting your inventory numbers down in the next couple of weeks, which helps get your COGS amount up!
