Does your EPOS system give an accurate stock valuation?

At lot of EPOS systems come bundled with some sort of stock control software. Although the features range from simple to advanced, as a retailer you should always ask about the stock valuations. Getting an accurate stock valuation report is the final output of a stock system - and it is the report that keeps you accountant happy – so does your EPOS system give an accurate stock valuation report.

The main aim of stock control software is to keep track of how many of each item of stock you have available. This is the most transparent aspect of a stock control system. If I buy 10 and sell 2 then I should have 8 in stock. If an EPOS stock control system can’t manage this, then it really is poor!

Happily most EPOS stock control software can manage this. They give you goods-in and stock take features etc, all the things you need to run your business on a day to day basis.

However, the day will come when your accountant will ask for a stock valuation report to complete the year end accounts. Often, you will print this out after entering the annual stock take, however, the EPOS system should be capable of printing out a stock valuation at any point on time.

Although the actual quantities of stock are a fairly clear cut figure, the value of the stock is much more complicated. Most stock control systems maintain a latest cost figure for each stock item. This is the value which you buy the stock at. The simplest sort of stock valuation report values each item of stock at its latest cost. The accuracy of this sort of valuation varies enormously with the type of business. If the buying cost of your stock does not vary much, it may well be that a latest cost valuation is all you need.

From a programming point of view, a latest cost valuation is the easiest to produce – you simply multiply the quantity in stock by the latest each cost, and print out a long list.

However, many businesses need something more sophisticated. If I raise a purchase order for 10 items at 50p each, and receive the goods onto the stock control system, it is fairly obvious that the stock valuation is 5.00. If a couple of weeks later, the invoice arrives for 55p each. You put the invoice on the system, and update the latest cost price on the stock record. The stock valuation will now say 5.50 – which is quite true. Now the price increases to 60p, and you buy another 10. You receive the invoice at 60p. You update the latest cost to 60p and book in the additional 10 items. Your stock valuation now says 20 @ 60p = £12. This is obviously wrong. The first 10 are at a different value. The stock is really worth 10 @ 55p PLUS 10 @ 60p = 11.50.

This is where the latest cost valuation falls down. Latest cost is primarily for buying stock, not evaluating it. If the scenario above is important to you, then you need to make sure that the EPOS stock control system can handle it. The value of your stock should correspond to the amounts on your purchase invoices.

If I now sell one, what is my stock worth. This is where FIFO comes into it. According to FIFO the first one you sell comes out of the older batch of stock at 55p. Now I have 9 @ 55p and 10 @ 60p = 10.95. More importantly, the profit must be calculated correctly. If I sell them for a pound, the profit on that sale is 45p, not 40p!

An added dimension is running a stock valuation retrospectively – if you need to know what the value of stock was in the past, you need this feature in your EPOS system, but very few systems can do it properly – so ask probing questions in the sales process if this is important to you.

If your EPOS retail software stock control system doesn’t handle these type of scenarios, you will be stuck when it comes to producing a proper and accurate stock valuation report.