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Conduct a Physical Inventory


Most retailers are required by tax and/or accounting rules to provide an accurate on-hand value of the merchandise in its store. Although the retail store may be using a perpetual inventory system or other software to keep track of all items, it may still be required to physically count all inventory. Here's how to conduct a physical inventory with as little disruption and as much accuracy as possible.
Difficulty: Average
Time Required: > 1hr.

Here's How:

  1. Replenish shelves with merchandise from the stockroom. Try to clear as much inventory from the backroom as possible. Be sure there is no merchandise under cash wraps, in the office or any other location.
  2. If an inventory service has been hired to do the physical inventory, follow the guide they provide and prepare the store according to their instructions.
  3. If the physical inventory is being conducted by store employees, meet with staff to explain the inventory counting process.
  4. Assign each employee a location and provide pre-numbered inventory count sheets detailing the inventory with item name, price and inventory level.
  5. Those conducting the inventory should count each item on their sheet and only record the exact quantities.
  6. When the physical inventory count is completed, compare the physical count to the perpetual inventory record.
  7. Discrepancies should be further investigated and resolved. A recount may be required by a different counting team for any major discrepancy.
  8. At the end of the inventory process, adjust the perpetual inventory record for each line item to reflect the quantity and value of the physical inventory.


  1. Complete a full zoning (recovery) or straightening of the store prior to the physical inventory so all products are neat and orderly for easy counting.
  2. To conduct the physical inventory count as quickly as possible, schedule a time when sales are slow and inventory levels are down.
  3. The store manager should spot check several of the count sheets to verify accuracy in counting by employees.

What You Need

  • Inventory Team of Several People
  • Pencils with Erasers
  • Inventory Count Sheets
  • Tags Showing Completed Zones

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