Stocktaking: Taking the controls
Although not a glamorous job, effective stocktaking is essential to any business.
Stocktaking may not be a subject to get your spine tingling with excitement but for the independent licensee it is one of the things that means the difference between success and failure. It isn't just a matter of counting up what you've got left so you can order some more. In a cash business like a pub a stocktake tells you whether your staff are on the fiddle - or maybe whether you've been dipping into the stocks a little too much yourself.
On the positive side, it can also help you to build a business, giving you information about profit margins and ideas about what lines are selling when, so you can tailor what you offer more efficiently.
Scottish & Newcastle Pub Enterprises provides a stocktaking service for its franchisees and in a recent edition of its in-house magazine Enterprising Times it quizzed four stocktaking firms on the questions most frequently asked by licensees. This is an edited version of the article.
Why is stocktaking important?
You have to see stock as a form of cash that is tied up in the business. The success of the business depends on how effectively the stock is turned into cash in the bank. Your stock is vulnerable as it is not locked in the safe or in the bank. Stocktaking can help maximise the return on your investment and help minimise the risk of loss.
Surely if a licensee has good control of the business, stocktaking isn't essential?
Stocktaking is part of having good controls. The stocktaker provides an independent view of the business by looking at ways of improving profitability and so on.
How often should I have a stocktake done?Usually monthly. Any longer and a problem could go undiscovered. It also helps in the production of more accurate profit and loss statements.
I run a stocktaking package on my PC. Do I still need a stocktaker?
On the face of it, no. But the value of a stocktaker is in the experience, advice, analysis and regularity they provide. If the stocktake is postponed there is a danger that any problems that have arisen will get overlooked and take longer to rectify.
I get monthly management accounts from my accountant. Surely that makes stocktaking irrelevant?
No. The accounts rely on regular stocktakes to provide an accurate gross profit percentage which reflects the performance of the business. Without stocktakes an estimate could lead to the licensee thinking they are making more money than they are and not realising how they could improve.
What should I look for on my stock report?
Lots of things. Gross profit percentage, surplus and deficit figures, slow-moving stock lines, the number of days stockholding and the value of the stock held (overstocking is an expensive practice), comparison of sales against last period or the same period last year, sales mix, pricing opportunities, variances between till sales and actual sales. The report can also be used to gauge how profitable the business is compared to the estimates in your business plan.
Do I need to tell the stocktaker if I'm running any promotions?
Yes - and keep records - otherwise they will assume that all drinks have been sold at the normal price. It also allows them to make adjustments to the surplus/deficit result and they can advise on the impact the promotion has had on the business.
Why does my stocktaker take readings from the till?
From itemised sales reports a direct comparison can be made between the amount of a product rung through the till and the amounts actually used up, pinpointing exactly how the surplus/deficit is made up.
Getting organised for a stocktake is such a hassle. Any tips to make it easier?
Generally, be organised and keep your invoices/delivery notes together and takings records neatly filed with records of any allowances. If you keep a tidy cellar and keep shelves and fridges well stocked it won't take long to count.
Make sure all empties are in the cellar and are kept separate from saleable stock with full cases below part cases. Be on hand yourself or have a key member of staff available to answer any questions the stocktaker may have and to accompany them on the stocktake.
What sort of training and qualifications do stocktakers have?
Some stocktakers become members of the Institute of Licensed Stock Auditors but there is no legal requirement to become a member.
I do a lot of cocktails and other mixed drinks. Does that make it difficult to calculate a true result?
Yes, unless the tills are programmed correctly or accurate records are kept of what makes up the cocktails. The stocktaker can then make an adjustment.
Does it make any difference if I freepour spirits?
The result will reflect how accurately you or your staff pour the spirits and show up over-pouring and under-pouring, both of which are illegal.
What can I legally claim in allowances and should I always go for the maximum?
Allowances are a way of adjusting the expected takings to account for unavoidable losses such as during line cleaning and other wastage. Over or under-claiming allowances could leave you in the dark about how the business is performing. If allowances become excessive the Inland Revenue can add some of them back and charge tax on the amount.
How about staff drinks and staff meals? Can I claim them as an allowance?
Yes. It is important that you are aware of how much is being consumed and the cost to the business - and the effect it will have on your margins.
I don't do a lot of food in my pub. Is it worth having food stocktakes done?
Generally yes, as food is not as easy to control as liquor - particularly wastage - and it is important to achieve a healthy GP on food.
What happens at the end of my financial year?
The stocktaker will organise a stocktake as near as possible to the business year-end and provide the accountants with a certificate of valuation.
Accountants always claim that they can save their clients money. Can stocktakers do the same?
Yes, by advising on cost prices, identifying losses before they get out of hand and discussing results. It is estimated that the average loss without stock controls is 10 per cent.
Trevor Heyburn, director of Christie & Co stocktaking arm Venners, explains the advantages of turning to professionals.
Many people think stocktaking is a long and boring task - time better spent running and promoting the business. But these days stocktaking is a hi-tech process that involves a great deal more than counting bottles - even though this is still an essential part of the assessment. Today's stocktakers are not just good with figures, they are experts in the latest technology.
Professional stocktakers complete their work before any customers arrive and can send a full, tailor-made report to the pub that afternoon.
Apart from counting everything that is stored in every nook and cranny in a pub, stocktakers check all relevant documentation, including delivery notes and invoices. The current stock is entered into the system and compared against recent trading history to spot any anomalies.
Bottles of spirits are tested for alcohol content using a small portable hydrometer kit to reassure the publican there is no evidence of tampering. Given that fraud is estimated to cost the industry £1bn a year, stocktaking is an essential safeguard for the business.
It is not just fraud that can cause problems. With pubs facing higher costs and tighter margins,
