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Part 1: Conducting an effective “closing” inventory count - Front Shop


Every inventory taking is important. When you complete an inventory count, it allows your bookkeeper and accountant to accurately determine your true margin and as a result, you to manage your business more effectively. It takes into account shrink, theft and is simply good management to do a physical count.  One also knows precisely the value of your asset, which helps you determine if you have too much or too little on hand.

But, the most important inventory count you will ever do is the one you do while completing the sale of your business. There are many right ways to do an inventory count at this critical time, and oh, so many wrong ways. The difference between right and wrong is usually in level of preparation, and the amount of communication with your purchaser and third-party inventory company, or lack thereof. Things need to be put in place well in advance of inventory day.

In a pharmacy sale transaction, the prescription inventory is usually counted much differently from the front shop items. So, we are going to divide this topic into prescription stock counting and front store stock counting.

An “Audit” Count

This is likely the least stressful and most efficient method of determining your inventory value. This method, however, takes the most preparation time. It will require that you have a POS system, and you have either done a pre-count or conduct regular cycle counts. Using an audit system, the seller prints off a detailed report of each item carried – usually grouped into departments. The purchaser then takes that report and audits it by going to those items on the shelf and checking for accuracy. There will always be discrepancies due to theft or staff error for example, but typically if the seller has prepared properly, the purchaser will find comfort in this system. In the rare event, there are huge discrepancies, and the buyer is uncomfortable, a complete count is requested. The ramifications are fairly substantial as if this is the case, the closing date can be delayed.

“Retail” Count

In this method, the stock takers input the retail price of the items, along with the count, and categorize their report into sections – which usually loosely translate into departments. Once the count is complete, the margin is applied to derive the cost. We advise that the buyer and seller agree on department margins ahead of time to minimize disagreements on inventory day. Make sure everything is labeled/ticketed properly. If you use shelf tags, make sure they are accurate and fully visible. If you are using price tags, make sure the stock is COMPLETELY labeled and organized.

“Cost” Count

There are essentially two methods of doing this. In the absence of a POS system, retailers typically put a cost code on the price labels. The inventory company is supplied with these codes prior to the start of inventory, and they enter the cost based on the code and the quantity. We see this method less and less in the advent of reasonably priced POS systems.

With a POS system, there are many methods of doing a cost count, each with there advantages and disadvantages.

“Scan and upload”

The inventory takers scan the UPC and enter the quantity into their hand-held units. These units are uploaded into their master system. Once the inventory is complete, the quantities are “uploaded” from their system into the POS, which overwrites what was in the POS system. This is not to be taken lightly – this is a method only for knowledgeable POS operators and/or experienced inventory companies. If the buyer and seller agree, employees can do this method, but be forewarned; a third-party company can usually do this more efficiently and for less money.

“Cost file” scan

There are essentially two nuances to this method which are based on where the file originates. If the inventory company has the ability, they can upload the seller’s cost file from the POS system. Or the cost file can be uploaded from the wholesaler. The stock takers scan the UPC and enter the quantity. The master system links the UPC to the cost and calculates inventory based on the cost file. Beware, the store will likely have many items that they buy from vendors other than the main wholesale. Using the seller’s cost file usually is less eventful on inventory day. Warning, make sure the inventory company is dedicated to uploading and testing the file well before inventory day.

Sometimes there are items handled differently from the above, including but not limited to lottery tickets, seasonal items stored away in the back, cards, and sometimes magazines. Sometimes the cash register “float” is included in the inventory count if it has not been accounted for in other ways. Remember to exclude commission sale items (for example, reading glasses). Sellers should not expect a buyer to buy ‘old friends’ that should have been blown out or written off long ago. We typically instruct sellers to discount and get rid of old stock to avoid having arguments on inventory day.

Part 2: Conducting an effective “closing” inventory count - Dispensary


Mike Jaczko, BSc. Phm, RPh, CIM®, FEA, a pharmacist by background, is a portfolio manager, partner and member of KJ Harrison Investors, a Toronto-based private investment management firm servicing individuals and families across Canada. For more information on this topic, email [email protected] or visit

Max Beairsto, B.Sc. Pharm., MBA, CVA is a pharmacist and valuation analyst with Enterprise Valuators Corporation (EVCOR), an Edmonton-based business valuation firm that focuses on business valuations and sale advisory of small and mid-sized private companies. You can reach him at [email protected] or visit

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