How to calculate the value of your shop's inventory

Your shelves hold money. Every tin, bottle and charger on them was bought with cash you cannot spend elsewhere until it sells. Inventory value puts a number on that money: what your stock cost you.

The formula is simple. For each product, multiply units on hand by cost per unit. Add the results together. That total is your inventory value at cost.

If these were all the products in the shop, the inventory value would be $381.80. At the selling prices of $2.50, $6.00, $8.00, $15.00 and $2.00, the same stock would sell for $120 + $120 + $120 + $150 + $80 = $590. The $208.20 difference is your potential gross profit, not part of the inventory value.

In a real shop with 300 products the arithmetic is the same, just longer. That is exactly where a spreadsheet or a system earns its place.

• Insurance. If a fire, flood or storm damages your shop, you need to show what the stock was worth. Hurricane-prone shops especially should keep a current number. See hurricane season shop checklist.
• Loans. Lenders and suppliers offering credit often ask what stock you hold.
• Turnover. Inventory turnover compares the cost of what you sold to the average value of stock. See inventory turnover.
• Cash tied up. If your inventory value keeps rising while sales stay flat, you are buying more than you sell.
• Spotting problems. A sudden drop with no matching sales suggests loss, waste or recording errors.

1. Count the stock first

   The units column must come from a real count. See how to do a stock count.

2. Use the true cost

   Include what you paid the supplier. If delivery or duty is a regular extra cost, consider adding it. See inventory valuation methods.

3. Update costs when they change

   A supplier who raises prices changes the value of your stock and your margins.

4. Remove unsellable stock

   Write off damaged and expired items so you are not counting stock you cannot sell. See stock adjustments and write-offs.

5. Date the number

   Inventory value changes daily. Write the date next to it.

How to treat stock bought at different prices (FIFO and similar) is a deeper subject. For most small shops, using the latest cost per product is a sensible, simple approach, but check with an accountant if you need figures for tax or lenders.

If you have no records, you can still get a rough number today. Pick one shelf or one category, count the items, and multiply by an average cost. For example, 20 cooking oils at about $6 is roughly $120. Repeat for each category and add them up. It will be rough, but it is far better than not knowing, and it gives you a figure to improve against.

A sensible target is to be within 5 to 10 percent of the true figure for the whole shop, and closer for your most expensive lines. If the biggest ten products by value are accurate, the total will usually be close, because small items rarely move the total. This is the same idea as ABC analysis. Read ABC analysis for small shops to see how to count the valuable items more often and the rest less often.

Shopkeepa keeps units on hand for every product as a ledger of movements: sales reduce it, received stock increases it, and damaged, expired, theft or loss and correction entries adjust it. If you enter a cost for a product, Shopkeepa's inventory value report multiplies the two for you and totals them, so the number updates as you sell and receive stock instead of waiting for a monthly sum.

Rapid stock counts keep the units honest, and the value report covers products where cost is known. Products without a cost are not valued, so filling in cost on your top lines first gives the biggest improvement. Reports are visible to the owner, and cashiers cannot see cost. Learn more about sales and profit reports. Shopkeepa is in development, and early access shops will help shape it.