Stocktakes, wastage and stock control

What a stocktake is for

A stocktake is a count of everything on hand, valued at cost, on a set date. It gives the closing stock figure that turns a month's purchases into a cost of sales, and so into a gross profit. At the year end it gives the stock figure in the accounts.

A limited company must keep a record of the stock it owns at the end of its financial year and the stocktakings it used to work out that figure. GOV.UK lists both among the accounting records every company has to keep.

The count also shows how much cash sits on the shelves. Stock above what you need until the next delivery is money that could be in the bank, and short-life stock held too long ends up in the wastage log.

Counting stock

Count drink every week or every month and food every month. Weekly counts on draught and spirits show a problem within days. Whatever you choose, keep to it: the same day, the same time, before opening, with nothing delivered or sold during the count.

• Count by area in a fixed order: cellar, bar, stores, walk-in, kitchen.
• Count full units, then part bottles in tenths and kegs by weight or by a keg gauge.
• Use the same list each time, in the order the shelves are laid out.
• Have one person count and a second check high-value lines such as spirits and wine.
• Count stock held for functions and in any second bar, freezer or store on the same day.
• Write the count on a printed sheet or a stock app, never from memory, and sign it.
• Price each line at its latest cost before VAT if you are VAT-registered.

Valuing stock

HMRC accepts stock valued at the lower of cost and net realisable value, the price it can be sold for less the costs of selling it. FRS 102, the accounting standard most small companies use, calls this estimated selling price less costs to complete. In a kitchen or cellar the rule matters for stock that is out of date, damaged or no longer on the menu: it is written down to what it will fetch, which can be nothing.

Take six bottles of a wine that has come off the list. They cost £9 each before VAT, £54 in all. If the most they will now fetch is £6 a bottle before VAT, sold by the glass to staff or at a bin-end price, they go into stock at £36. The £18 write-down is part of that month's cost of sales.

Prepared food, such as sauces and stocks made in the kitchen, can be counted at the cost of the ingredients in it. Keep the method the same from one count to the next.

Returnable kegs, casks and gas cylinders belong to the supplier and are left out of stock. A deposit paid on them is money owed back to you by the supplier. Record it apart from stock.

The wastage log

Waste is cost with no sale against it. A log kept by the kitchen and the bar, with each item recorded at cost and a reason, explains much of the gap between theoretical and actual gross profit.

One week of a kitchen wastage log

• Produce and dairy past their use-by date£86.40
• Dishes sent back and remade£42.00
• Dropped or burnt during service£18.50
• Staff meals£64.00
• Complimentary desserts and drinks for customers£37.50
• Recorded at cost, 10.4% of the week's £2,400 of food purchases£248.40

The log only works if every member of staff can reach it during service. Keep it on a clipboard or a tablet by the pass and behind the bar, with the cost of the main items printed on it, so an entry takes seconds. The head chef and the bar manager check it at the end of each shift.

Add the log up each week and compare it with purchases. A rising figure for one reason, such as use-by dates, tells you to cut an order or a menu line. Line cleaning and the first pint pulled from each new keg belong in the bar's log.

Staff food, owners' meals and free items

Food and drink given away is cost with no sale. It also has rules of its own for VAT, tax and the minimum wage.

• Staff meals. VAT Notice 709/1 says that where employees are not required to pay for catering, no VAT is due. The same applies where a deduction from gross wages is provided for in the contract of employment. Staff meals do not count towards the minimum wage, and deductions for meals may reduce a worker's pay for the minimum wage test.
• Owners' meals. Under the same notice, meals a proprietor supplies to themselves or their family are not catering, so no VAT is due on them. VAT is due on the full cost of standard-rated items, such as crisps, sweets and soft and alcoholic drinks, taken from stock for their own or their family's use.
• Owners' meals and income tax. HMRC's Business Income Manual says that for the proprietors of hotels, boarding houses and restaurants, the cost of meals for themselves and their families is disallowed. It comes out of the business's expenses. Other trading stock a sole trader takes for personal use is treated as sold at market value.
• Free meals and drinks for customers or friends. Notice 709/1 treats these as business entertainment: the VAT on the food and drink cannot be reclaimed. Free mints or liqueurs given with a meal the customer pays for are treated as part of that meal.

Variance between stock and the till

The stocktake tells you how much was used. The till tells you how much was sold. For drink the two can be compared line by line, in pints, bottles and measures.

A month of draught lager against the till

• Opening stock 6 kegs + 12 delivered − closing stock 3 kegs15 kegs
• Pints in 15 kegs of 50 litres, at 88 a keg1,320 pints
• Pints sold on the till1,240 pints
• Pints with no sale against them80 pints
• Cost of those pints at £150 a keg£136.36
• Sales missing at £4.50 a pint before VAT£360.00

Spirits and wine are checked the same way, by the measure. A 70cl bottle holds 28 measures of 25ml. If a bottle costs £16 before VAT and each measure sells for £4.20 including VAT, which is £3.50 before VAT, a full bottle sold by the measure brings in £98 and a gross profit of 83.7%. A count that shows two bottles used and 40 measures on the till means 16 measures, £56 of sales, with no sale against them.

For food, compare actual gross profit with the theoretical figure from your recipe costings. Build trimming into each costing, so the remaining gap is loss. A gap that grows from one month to the next needs a line-by-line check of the highest-cost items: meat, fish, cheese and anything that can be taken home.

Controls that cut loss

• Ordering. Set a par level for each line, the stock you need until the next delivery, and order up to it.
• Receiving. Check every delivery against the delivery note and the order before signing, and weigh meat and fish.
• Rotation. Put new stock behind old, and label prepared food with the date it was made.
• Storage. Lock the cellar, spirits store and wine. Limit who holds the keys.
• The till. Every item poured or plated is rung in, including staff drinks and free items on their own buttons. Review voids, refunds and no-sales each week.
• Monthly review. Each month, take the three lines with the largest shortfall in pounds and check their deliveries, counts and till entries first.
• Recipe cards. Weights and garnish for every dish, with a photograph, at each station.

The year-end count

The stock figure at the year end goes straight into the profit for the year, and so into tax. An overstated closing stock raises profit by the same amount. An understated one lowers it, and HMRC expects the valuation to reflect the facts on the day.

Closing stock overstated by £3,000 at the year end

• Cost of sales understated by£3,000
• Profit overstated by£3,000
• Corporation tax paid on that profit at 19%£570

Count on the last day of the financial year, or as close to it as you can and adjust for deliveries and sales in between. Keep the count sheets with the year-end papers. A company has to keep them for 6 years from the end of the financial year they relate to.

Common mistakes

• Counting at different times of day or on different days of the week.
• Pricing stock at selling price, or at cost including VAT when you are registered.
• Leaving out stock held in a second store, a freezer or a function room bar.
• Carrying out-of-date stock at full cost.
• Giving away food and drink without a till button or a log entry.
• Counting returnable kegs, casks and gas cylinders as stock.
• Guessing the year-end stock figure.

How we help

We take your stocktake sheets each month, work out wet and dry cost of sales, and report the gap between theoretical and actual gross profit alongside your accounts. See accounts and VAT, or accountants for pubs and bars.