How Small Businesses Can Minimize Shrinkage

By QuickBooks Canada Team

2 min read

Shrinkage is a common issue that all inventory-holding businesses face, small or large. The term “shrinkage” refers to inventory lost between acquisition by the business and sale to the end customer. It occurs for all kinds of reasons: damaged products, inaccurate inventory counts, missing products, and internal or external theft. Take steps toward minimizing shrinkage by tightening up on your inventory management policies.

Inventory Management

Plenty of shrinkage occurs due to inaccurate inventory management and accounting. Minimize this shrinkage by taking steps to make inventory accurate and update any changes in inventory as soon as they happen. These steps include:

  • Dedicated inventory management at the point of delivery: Assign an employee to check order forms, packing slips and actual inventory received against each other at the time of delivery. Settle inaccuracies before the vendor leaves to avoid any shortages contributing to shrinkage numbers.
  • Regular inventory checks: Depending on the volume of your business, conduct inventory checks at least once a year. This means counting every product in your warehouse or storefront and comparing them to your accounting numbers.
  • Policies for damaged product disposal: Don’t let your employees just throw away those stale baked goods or shattered glass earrings. Have a procedure in place for documenting any damaged items so that you can account for them in your inventory management system.

Internal Theft

Theft by employees is preventable through proactive monitoring, training and hiring. Some common tactics include:

  • Hiring precautions: Background checks, credit checks and personal reference checks all help ensure that you’re hiring people with strong character who are less likely to become an internal theft liability.
  • Proactive training: Training your employees to watch out for internal theft and report suspicious activity helps by bringing extra sets of eyes to the workplace. Teach your employees that shrinkage affects your bottom line, which affects everyone – including your staff.
  • Careful monitoring: Thoughtfully placed camera equipment is a worthwhile investment that can deter internal theft or catch it as it happens. If you run a retail store, good camera placement includes at the point of sale, in the back room and by exit doors.

External Theft

Shoplifting is a real problem for many business owners. Teach your crew to deter theft before it happens. Training for recognizing and deterring external theft often includes:

  • Recognizing suspicious behavior: This can include skulking around in blind spots, crouching behind displays, looking directly at cameras, or repeatedly grabbing and setting down objects.
  • Greeting every customer: Customers who have been greeted know that your team is watching them, and they’re less likely to steal if they know they’re being watched.
  • Having an anti-theft return policy: A common scam involves stealing merchandise and then returning it for cash. Having a return policy that requires a receipt discourages potential thieves.
  • Using anti-theft devices: Simple devices such as magnetic tags and spider wraps make it difficult for shoplifters to conceal and remove items from the store, making them a great choice for protecting high-ticket merchandise.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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