How to run month-end inventory: the count, the cutoff and the value

Your monthly P&L has one number that you produce yourself: closing inventory. Everything else comes from the POS, the bank and the invoices. If that number is off by $800, food cost is off by $800, and you could spend a week chasing a waste problem that was really a counting problem.

This post is the routine for that one count: when to do it, how to count, the cutoff that trips most people up, how to put a value on what you counted, and the checks before it goes to your bookkeeper. Every money figure here is hypothetical.

General information, not accounting or tax advice. Your accountant decides how inventory is valued in your books; this post is about doing the count the same way every month.

Why the count matters so much

Cost of goods sold for the month comes from three numbers:

COGS = opening inventory + purchases − closing inventory

This month's closing inventory is next month's opening inventory. So a count that's too high makes this month's food cost look good and next month's look bad, and the other way round. Our monthly P&L review shows where COGS fits in the rest of the P&L.

Hypothetical example:

If the closing count had been $800 too high, COGS would read $12,300 (26.7%), and next month would carry the $800.

Step 1: Pick the time and keep it

• The same point every month: after close on the last day of the month, or before opening on the first. Both work; switching between them doesn't.
• No sales during the count. Food that leaves during the count turns into a mistake.
• Not during a delivery. Ask vendors not to deliver during the count window, or count the delivery area last.

Step 2: Prepare the sheet and the team

• Use the same count sheet as your weekly count, laid out in the order you walk the store. Our weekly inventory count sheet shows the layout and the counting rules.
• Count the full list, not just the high-value items you count weekly. Month-end covers everything you'd put in COGS: food, beverage, and packaging if your bookkeeper puts it there.
• Two people, one counting and one writing, or two people counting the same zone and comparing for high-value items.
• Units agreed in advance: cases and loose units counted separately, open containers in tenths or by weight, the same way every month.

Step 3: Count, zone by zone

Don't count:

• Food that's out of date or spoiled. Throw it out and log it on your waste log before the count.
• Cleaning chemicals and smallwares, unless your bookkeeper wants them.
• Staff's own food.

Step 4: The cutoff

This is where most month-end counts go wrong. The rule:

If it's on the shelf and in the count, its invoice belongs to this month. If its invoice is in this month, it should be on the shelf or used.

Write a short cutoff note with the count: the last delivery included, and any invoice that's on the wrong side of the line. Your bookkeeper will thank you.

Step 5: Put a value on it

Each item's value is quantity counted × unit cost. The question is which unit cost.

• Last invoice price is simple and common in small cafés: whatever you paid most recently for that item.
• Other methods exist, such as average cost or first-in, first-out. Which one your books use is your accountant's call.
• Whichever you use, use it every month. Changing the price basis between months moves COGS without a single bean changing hands.

Price open containers at the same fraction you counted them: 0.4 of a $30 bag is $12.00.

Hypothetical check on one line: 6.4 bags of beans × $60.00 last invoice price = $384.00.

Step 6: Check it before it goes anywhere

Then send the total, the sheet and the cutoff note to whoever does your books, on the same day each month.

Step 7: Read it with the P&L

Once COGS is in, compare it with what your recipes say you should have used. A COGS % well above your plate costs suggests waste, remakes, staff meals, portioning or theft. A gap that's steady month to month is usually a costing problem; one that jumps is usually an operating one. Our guide to prime cost shows how food and labor read together.

Your month-end inventory checklist

• [ ] Count time set: same point every month, no sales, no deliveries
• [ ] Full count sheet, store-walk order, units agreed
• [ ] Spoiled and out-of-date items thrown out and logged first
• [ ] Every zone counted, delivery area last
• [ ] Cutoff note: last delivery included, invoices on the wrong side listed, credits owed
• [ ] Count valued on the same price basis as last month
• [ ] Top ten lines and units checked
• [ ] Total compared with last month
• [ ] Sheet, total and cutoff note sent to the bookkeeper

Where Mays fits

• The count. Start a Full audit under Inventory → Counts on the web, or count in the app with Guided mode, shelf by shelf, by tapping, scanning or saying the count. Submitting sets each counted item's on hand and shows Variance against what Mays expected. See Running stock counts and Counting inventory in the app.
• A value for what's on hand. Inventory → Reports → On-hand value shows the location's Inventory on hand total and each item's Value (on hand × unit cost). See Inventory reports.
• Deliveries before the count. Post each delivery's invoice with Post & receive before you count. Posting is what adds the stock, so the count's Expected includes the delivery. See Vendor invoices and Receiving deliveries.

What Mays doesn't do: the on-hand value is for now, not the moment you counted, and it uses the lowest current vendor price for each item, not your last invoice price. Open it right after you submit the month-end count and write the total down. It has no export, and counts can't yet be approved, so the actual vs theoretical report can't use them.

The same count, every month

Same time, same route, same units, same prices, and every invoice on the right side of the line. Do that and the month-end number is one you can read, not one you have to explain.

Start your free trial: 30 days, every module, no card needed. Or book a walkthrough and we'll set up your counts with you.