Feb 26, 2015
Millions of dollars are lost every year through stock shrinkage
in retail and many other types of businesses. Shrinkage is a
very expensive loss. Shrinkage occurs whenever the business
fails to sell an item at its full price. The difference
between the selling price of a product and the actual selling price
is shrinkage.
Accountants can effectively recover their fees by proactively
advising clients on shrinkage reduction strategies.
Shrinkage can be caused by:
• damage;
• theft by an employee;
• theft by a customer;
• errors in recording label numbers;
• not adequately checking goods when they’re
received into the business;
• poor handling techniques;
• dropping stock;
• leaving perishable products out of
refrigeration;
• over-ordering products, thus having products
that need to be discounted to sell; and
• stock going out of date – this can be caused by
poor stock rotation.
Management needs to ensure staff are aware of the requirements to
reduce shrinkage, to protect the business’ profits.
Major areas of shrinkage on which staff could be concentrating
include:
• inadequately checking goods received from
suppliers;
• dishonesty by customers and staff;
• careless handling of stock;
• not rotating stock properly; and
• not returning stock to refrigeration or
chillers fast enough.
The review of a client’s stock management system is an appropriate
activity for an accountant to undertake, in an attempt to firstly
identify the amount of money being lost by stock shrinkage and then
to determine policies and strategies to try and reduce the cost of
shrinkage.
This is one of the many activities accountants could embrace, as
part of their ongoing strategy to contribute to a client’s
value-adding and to offset the reduction of income that will occur
through changes in compliance requirements with the Australian
Taxation Office.