Stock: money waiting on the shelf

Selma the florist's counter

Selma Hanım is a florist. Getting ready for Valentine's Day, she bought 8,000 lira of roses. She sold 5,000 lira of them; 3,000 lira of roses wilted and were thrown away. Selma Hanım's question: "I paid for them when I bought them; where is the money for the goods I couldn't sell?"

The answer: It's gone. Make a note of goods you throw away straight away: what you threw away, how much, on which day, and why. If possible, take a photo and tell your mali müşavir (certified public accountant) in the same month. They will tell you how spoiled goods are recorded and whether an official report (tutanak) is needed; if you are a VAT payer, these goods may also affect your VAT (KDV, value added tax) calculation. In this example the flowers do not last; but the same logic applies to durable goods too, except that the money disappears more slowly, or does not disappear at all but waits for a long time.

What is stock?

Stock (stok, also called inventory) is goods you have bought or produced to sell that have not been sold yet. The shelves at a corner shop, the dye and shampoo at a hairdresser's, the fabric at a tailor's, the spare parts at a repair shop: these are all stock.

The rule of stock is simple:

• When you buy the goods, money goes out (or a debt is recorded).
• When you sell the goods, the money comes back, with your share added on top.
• Until they are sold, the money waits on the shelf.

Unsold goods are neither an expense nor income yet. In a business keeping books on the balance-sheet basis (bilanço usulü), the accountant holds these goods as "stock"; when the goods are sold, their cost turns into an expense. For those keeping a business book (işletme defteri), purchases are first recorded on the expense side, and at the end of the year the goods left on hand are counted and added into the calculation; the result comes out in the same place. Under the simplified method (basit usul) the rules are different. Ask your accountant which type of books you keep.

"Unsold goods are money that has left the cash box"

Let's see it with an example. Hasan Usta's repair shop bought 10,000 lira of spare parts at the start of the month. This month he fitted 4,000 lira of parts to customers' vehicles. He invoiced for these.

6,000 lira left the cash box but did not go into this month's expenses. Looking at profit, things look good; looking at the cash box, there is no money. This is one of the reasons for the difference between profit and cash (see Profit but no cash (in Turkish)).

Why is too much stock a trap?

1. Money gets tied up. You can't pay the rent with the 6,000 lira waiting on the shelf.
2. Goods age. Flowers wilt, food goes off, fashions pass, technology becomes outdated.
3. It takes up space. A storeroom means rent too.
4. It gets forgotten. Goods left at the back of a shelf will one day be searched for with "where is this?"

Too little stock is a problem as well: if you say "We don't have it", the customer goes to another shop. The aim is not zero stock but as much stock as you need.

A simple stock count

If you keep books on the balance-sheet basis or keep a business book, at the end of the year you need to count the goods you have on hand and report them to your accountant; under the simplified method the situation is different, so ask your accountant. But you should look much more often, without waiting for the end of the year. Do it like this:

1. Count. Write down the quantity of every product on the shelf.
2. Price. For each product, write down what it cost you (not the selling price, but the purchase price).
3. Multiply and add up. Quantity × purchase price. The total is your money waiting on the shelf.
4. Compare. Compare it with last month's total. If it is growing, goods you cannot sell are piling up.

A small business can do this once a month in half an hour.

Which goods are moving slowly?

While counting, ask this question: "When did I last sell this item?" A product you haven't touched for three months is money waiting. Either discount it or don't order it again. Selling at a discount and getting the money back is usually better than leaving it waiting on the shelf.

Before placing a new order

• How much is on the shelf?
• How much do I sell a month?
• How long does the supplier take to deliver?
• If I buy in bulk, is the discount I gain bigger than the cost of tying up the money?

Buying in bulk looks cheap, but that extra money tied up can squeeze you on rent day.

Durable goods are waiting money too

Flowers wilt, so the danger is visible at once. But fabric waiting in a tailor's cupboard or spare parts on a repair shop's shelf do not wilt, so the danger stays silent. If 3,000 lira of fabric bought two years ago because "it'll come in handy" is still on the shelf, those 3,000 lira have not been working for two years. Back then, the same money could have covered the rent, or a new machine.

Stock and invoices

Keep the invoices for the goods you buy. The documents for goods on your shelf matter to your accountant too, because if your type of books requires it, you report the value of the goods on hand to them at the end of the year. Buying goods without an invoice makes it harder both to record the expense and to count your stock correctly. Ask your accountant about the exact procedure and timing of the year-end stock count; they will guide you according to the type of business.

In one sentence

Stock is not bad; but stock you don't know about is money quietly waiting somewhere. Count it once a month, add it up, and compare it with last month.

What you will find when you count

At the first count, most businesses are surprised: "We had this much stock?" Some find boxes that haven't been touched for a year; some notice repeat orders they never knew about. This surprise is normal. Don't do the count once and stop; if you keep going in the second and third month, it becomes clear by itself which goods move fast and which move slowly, and your ordering decisions shift from gut feeling to numbers.