According to the research company OPI, businesses with four or fewer employees spend an average of $1,844 for each employee’s annual office products.
Don’t put off office supply inventorying. An accurate, up-to-date inventory will ensure that your company always has sufficient stock. Moreover, it will enable you to determine if your purchases are assets or liabilities within your companies books. You may even be able to covert some of the money you spent on those consumables into end-of-year tax deductions.
Now, let’s go over the basics of office supply inventory and how it can impact your business.
What You’ll Need to Get Started:
- Inventory log
- Laptop or tablet
- Company books or ledgers
Conducting a Physical Inventory Account
To start, you’re going to have to perform a physical office supply audit. An audit will help you develop a sum of all the products in your office supply cache. This data will help you project when to reorder supplies and how many supplies to order.
Step 1: Prepare an Inventory Log
Start by preparing an inventory log. Gather a laptop or tablet with a graphing program or graph paper and a pencil and head to your company’s supply closet. You may wish to use an inventory log template (such as this one). If you’re starting from scratch, create a blank Excel or graphing file with verticle columns that are labeled:
- Inventory ID
- Unit Price
- Quantity in Stock
- Reorder Level
- Reorder Time in Days
- Quantity in Reorder
Step 2: Group Supplies
Next, group supplies. You may choose to group supplies based on the following:
- Type (for example, paper, writing implements, printing supplies, etc.)
- Location (ideal for offices with multiple supply closets)
- Department (ideal for large companies)
We recommend that you physically organize items based on their written groupings. This will enable you to inventory items with greater speed and precision in the future. Here are five office supply closet organizing tips to get you started.
Use shelving, totes, dividers, and labels to organize your supply closet inventory. Check out the video below to see a well-organized office supply room. In the video, the office manager uses the Kanban System to organize supply closet inventory:
The Kanban system is a Japanese lean manufacturing system. You can easily apply the principles of the Kanban system to office supply room inventory.
As you can see in the video, the vast majority of office supplies are stored in neatly stacked plastic bins. Each bin has a label with an image and a written description of the item inside. Inside the bins, there are duplicate identification cards. When an employee takes the last item from a bin, they must take the duplicate identification card and clip it on a nearby “order” board. Once the item has been ordered, the duplicate card is moved to an adjacent “ordered” board. After the item is restocked, the duplicate card is placed back inside its designated bin.
Of course, this is just one example of an effective office supply inventory management system. As the speaker in the video points out, this system works well for them because they can order most supplies with less than a day’s notice.
You may also wish to divide your supplies into the following groups:
- General Office Supplies: This includes pens, pencils, printer paper notebooks, staples, calculators, etc.
- Technology: External hard drives, computer cords, thumb drives, etc.
- Shipping Supplies: Envelopes, packing tape, stamps, etc.
- Collaboration tools: Dry erase markers, bulletin boards, projectors. Etc.
- Janitorial supplies: Paper towels, trash bags, hand soap, etc.
- Kitchen supplies: Coffee, disposable cups, stirrers, etc.
Step 3: Count Supplies
Now, it’s time to do an item count. One way to ensure your count’s accuracy is to use a click counter, like those used in baseball and golf.
Log the name or item number for each type of supply. Then, log the total number of each item under the “quantity in stock” column on your inventory log. A spreadsheet or word processing program, such as Microsoft Excel, should help you facilitate this process.
Step 4: Schedule Weekly Physical Inventory Checks
Suppose this is your first time taking inventory of your office’s supplies, schedule a month of once-weekly inventory checks. During each inventory check, you will need to record the number of currently available units within your supply closet. You will use these numbers to determine each item’s ideal reorder rate.
Step 5: Determine a Reorder Strategy
Now, it’s time to assess the ideal reorder rate and mount for each product. You will need at least a month’s worth of accurate inventory counts to determine the average amount of supply used each day. Add all four weeks of inventory sums and divide by four to determine the mean average weekly supply demand for each item.
First, determine the number of days it takes your supplier to restock that item. For example, if your supplier ships pens once every two weeks, the reorder time for pens would be 14 days. With that said, the reorder level for pens needs to account for at least two weeks worth of pens and some cushion. Moreover, the quantity of the reorder should include at least two weeks’ worth of pens.
By the time you are finished, you should have the following verticle columns on your inventory log filled out to completion:
- Reorder Level
- Reorder Time in Days
- Quantity in Reorder
Avoid over-ordering: Offices often fail to identify over-ordering issues until it’s too late. Make sure that employees are using supplies before ordering new ones. While we do not always think of office supplies as perishable items, many office products have limited shelf lives. For example:
- Ink cartridges may dry out within 24 to 36 months.
- Printer paper may degrade when exposed to excess light or heat for extended periods.
- Many cleaning supplies feature expiration dates.
It’s also worth mentioning that you can only deduct the cost of supplies used during the current year. In, your unused stockpile of Bic pens isn’t going to transform into a tax deduction magically.
Accounting for Inventory
Now that you’ve taken an accurate physical inventory of the items in your office, it’s time to account for all of that stuff. In the standard business accounting method (accrual accounting), assets and liabilities must be accounted for regardless of whether or not there has been a cash transaction.
Step 1: Determine Which Supplies are Assets and Liabilities
In accrual accounting, office supplies that have not been used are considered assets. Meanwhile, supplies that have been used are considered liabilities. If you’re using accrual accounting, you will charge your supplies to a business expense account as you use them.
Legitimate businesses are expected to keep accurate and up-to-date office supply inventory logs. Office supply accounting will help you:
- Understand and track your expenses
- Reduce your tax liability: Supply expenses are considered deductible business expenses. As such, you’ll want to include them on your business’s quarterly profit and loss statements.
- Furnish proof of business expenses
Remember: Office supplies differ from office equipment! The IRS considers things like computers, laptops, and desks to be listed property.
Step 2: Calculate the Cost of Individual Units
Check with your supplier to determine the cost of each unit. Then, multiply that cost by the total number of units purchased per delivery. Update your business’s ledger to ensure that your books reflect your current office supply spending.
Step 3: Calculate Cost of Total Inventory Expenses
Now, add all of the unit costs to determine your total inventory expenses for each accounting period. Most companies use fiscal calendars to determine their quarterly accounting periods.
You can claim your office expenses as tax deductions as long as:
- You have itemized receipts for all of your office supply purchases.
- The supplies were “ordinary and necessary” business expenses.
Step 4: Transform Assets Into Liabilities
Each time an office supply cache is depleted, it transforms from an asset to a liability. Make sure to update your company’s ledgers at the end of each financial quarter. You may wish to label your new office supply liabilities as “expense removals.” Remember:
- Unused supplies are listed as “supplies on hand.”
- Used supplies are listed as “supplies expenses.”
- You should adjust the “supplies” balance at the end of each quarter.
- The total “supplies” balance adjustment should be listed as the sum of “supplies expenses.”
Here are a few steps that you can take to make the most of your inventory management system.
Use Your Supply Ledgers to Plan for the Future
Those office supply ledgers aren’t just for IRS auditors. It would help if you were using them better to understand your company’s office supply spending and use. You should be able to use the data to forecast future spending and even make meaningful changes to your office’s daily operations.
Limit Employees’ Access
You’re not going to be able to make accurate counts if employees are constantly coming in and out of supply closets. While an open supply closet may promote employee happiness, it does little to promote proper inventory control. Therefore, we recommend that you implement the following:
- Assign Someone the Role of Supply Closet Gatekeeper: Limit supply closet access to one person or a small group of people. This person will be responsible for fulfilling supply requests within the office.
- Lock It Up: While it might seem like an extreme measure, placing locks on supply closets or valuable inventory puts you in full control. While some small businesses can effectively run an honor-system office supply system, this typically isn’t the most business-savvy decision.
- Create a written procedure for supply requests
- Ensure that all supply requests are tracked
- In the least, require employees to log what they take from the supply room. An Inventory Record Logbook will help you audit inventory use. Of course, an honor system log is subject to misuse.
Consider Supply Shrinkage
Are office supplies disappearing into thin air? According to the SMB Office Supplies Shrinkage Survey by OfficeMax, office works tend to borrow, misplace, steal, and even hoard office supplies. This sort of behavior can put a major damper on your office supply inventory efforts. While a few missing pens aren’t going to be the demise of your business, continued and persistent shrinkage could put a damper on your business’s financial stability. If you notice any red flags on your logs or ledgers, it might be time to implement a tougher supply use policy within the office.
Don’t Get Too Comfortable
Inventory checks aren’t one-and-done events. You should perform regular inventory audits at the end of each accounting period or whenever issues arise. Always your most current inventory logs to determine supply ordering frequencies and amounts.
Please keep an open mind when it comes to office supplies. You may find that certain office policies help you reduce your office supply spending or even reduce your office’s carbon footprint.
You may be able to save money by switching vendors, shopping in bulk, or switching to generics.
Don’t Forget The rules
You can apply the first-in, first-out rule to any inventory. It means that you always use the oldest stock first. When it comes to potentially perishable office supplies, the first-in, first-out rule can prevent waste.
You can depreciate office supplies and equipment used to startup a new business. As of 2020, you can deduct up to $5,000 of your startup costs on your business tax return.
We hope you enjoyed our guide on how to inventory office supplies. An accurate and up-to-date office supply inventory can help you manage your business’s spending and even cash in on some hearty end-of-year tax deductions. Best of all, when you apply these practices correctly, you should never have to cope with supply outages again! While customer service, employee happiness, and revenue may be your highest priorities, it’s often the little things (including pens and paper) that keep a business chugging right along. Do you have any remaining questions or comments? If so, feel free to drop them in the section below.