How to Do a Stocktake — A Step-by-Step Guide for Makers
A stocktake isn't just counting stuff. For makers, it's how you get accurate ending inventory for your COGS calculation — and that number feeds directly into your tax return. Here's how to do it without it taking all day.
Every year, the same scene plays out for thousands of makers. Tax time arrives. An accountant — or a tax form — asks for your ending inventory value. And suddenly you realise you have no idea. Not really. Not accurately.
So you spend a weekend counting candles, weighing wax, tallying jars of fragrance oil, and trying to figure out what finished bars of soap are actually worth at cost. It’s tedious. It’s stressful. And the number you come up with is probably a guess dressed up as a figure.
That’s the problem a stocktake solves. Done properly, it takes a few hours at most. And the number you get is accurate enough to actually trust.
Here’s how to do it.
What Is a Stocktake?
A stocktake — also called a physical inventory count in the US — is the process of physically counting all of your raw materials, work-in-progress, and finished goods, then comparing those counts to your records.
The goal is to know exactly what you have on hand, at cost, at a specific point in time. That figure — your ending inventory — feeds directly into your COGS calculation, which in turn affects your taxable profit.
Put simply: if your ending inventory is wrong, your COGS is wrong, and your tax numbers are wrong.
It’s not optional for anyone running a product-based business. The IRS (and most other tax authorities) requires an accurate inventory figure. A stocktake is how you get it.
Why Makers Need a Stocktake More Than They Realise
Most makers come from a creative background, not an accounting one. The assumption is often that inventory tracking is something you do when you’re “big enough” — when you have a warehouse, a team, a barcode scanner.
That’s backwards.
If you’re making and selling anything — candles, soap, jewellery, skincare, baked goods — your inventory sits at the heart of your business finances. The moment you buy materials, they go onto your balance sheet. The moment you sell finished goods, those materials become COGS. Your tax return depends on getting this right.
A stocktake is simply the process that makes sure your records match reality. Done once a year at minimum, it keeps your books accurate. Done quarterly, it also helps you spot problems — shrinkage, waste, over-ordering — before they compound.
When Should You Do a Stocktake?
At minimum: once a year (before filing taxes)
Your year-end inventory count is required for accurate COGS reporting. Do this after your last sales period for the financial year — December 31 if you’re on a calendar year, or your fiscal year-end otherwise. Don’t leave it until you’re actually filing; count before the year closes.
Ideally: quarterly
A quarterly count lets you catch discrepancies early, stay on top of waste (particularly for perishable materials like essential oils, food-grade ingredients, or fragrance components with shelf-life limits), and keep your reorder quantities sensible.
Before and after major sales events
If you do craft fairs, wholesale shows, or run a big Cyber Monday promotion, a count before and after gives you a clear picture of what moved — and at what cost.
Whenever your records feel “off”
If you’re frequently running out of things you thought you had, or finding stock that shouldn’t be there, your records have drifted from reality. A spot count fixes this.
How to Do a Stocktake: Step by Step
Step 1: Prepare before you count
The biggest time-waster in a stocktake is chaos. Spend 30 minutes preparing and you’ll cut the actual counting time in half.
- Organise your storage first. Move everything to its proper place. If your coconut oil is spread across three different shelves, consolidate it before you count.
- Print or open your count sheet. A simple inventory count sheet with columns for item name, expected quantity, and actual quantity is all you need. (More on this below.)
- Set a cut-off time. Don’t process new orders or receive new stock during the count. Pick a quiet morning when sales are paused.
- Count in pairs where possible. One person counts, one person records. This catches errors immediately and prevents the temptation to round up.
Step 2: Count your raw materials
Work through every material you use in production. For each item, record:
- The item name or SKU
- The unit of measure (grams, litres, metres, units)
- The actual quantity on hand
Weigh where you need to. If you’re a candle maker, your soy wax or beeswax is probably measured in grams or kilograms — count the full containers and weigh any open ones. Don’t estimate. The whole point is accuracy.
Common items makers miss:
- Packaging materials (boxes, tissue paper, bags, stickers, labels, tape)
- Consumables used in production (gloves, wax paper, pipettes, test strips)
- Small quantities of materials left in open bottles or bags
These add up. A candle maker who ignores packaging costs is understating their COGS on every single unit sold.
Step 3: Count your finished goods
Finished goods are products that are complete and ready to sell. Count every unit you have on hand, across every location — your home studio, market stock bags, anything on consignment, photography samples.
For each product, record:
- Product name
- Variant (size, scent, style) if applicable
- Quantity on hand
You’ll need the cost per unit later (your cost to make, not your selling price) — but get the counts right first.
Step 4: Count your work-in-progress (WIP)
WIP is anything that’s been partially made but isn’t finished yet. This is the step most makers skip — and it’s also the one most likely to cause a discrepancy.
If you batch-produce, you’ll often have partially completed goods at any point in time. For example:
- Soap that’s been poured but not yet cured and cut
- Candles that have been poured but not labelled or boxed
- Jewellery components that have been assembled but not polished or packaged
WIP inventory has a value — it’s the cost of the materials that have gone into it. Make a note of what’s in progress and an estimate of how complete it is. This doesn’t need to be precise to the cent, but it shouldn’t be ignored entirely.
Step 5: Compare your counts to your records
Once you have your actual counts, compare them to what your records show. Discrepancies fall into a few categories:
- Over-count: You have more than expected — possibly a return that was restocked but not recorded, or a purchase that wasn’t entered
- Under-count: You have less than expected — shrinkage, waste, samples given away, or a recording error
- Complete mismatch: Your records were never right — usually happens when you haven’t been tracking consistently
For small discrepancies, adjust your records to match reality and note the reason. For large discrepancies, investigate before adjusting — something may have been missed.
Common Stocktake Mistakes Makers Make
Counting damaged stock at full cost value. If a jar cracked, a batch of candles didn’t set correctly, or products got water damaged in your studio, they should be recorded at reduced value or written off entirely. Carrying damaged stock at full cost inflates your inventory and understates your COGS.
Forgetting packaging. Labels, boxes, tissue paper, stickers — all of this is raw material inventory. If it goes into your finished product, it belongs in your count.
Skipping WIP entirely. “I didn’t count work-in-progress because it’s complicated” is how you end up with inventory discrepancies you can’t explain. Even a rough WIP figure is better than zero.
Counting samples and display stock as saleable goods. Products you’ve opened for photography, market display, or personal testing aren’t sellable inventory. They should be accounted for as consumed materials or an operating expense — not sitting in your finished goods count inflating your inventory value.
Doing the count in your head. If you’re glancing at shelves and making estimates, it’s not a stocktake — it’s a guess. Physical counts need to be exactly that: physical, deliberate, written down.
How to Use Your Stocktake Results for COGS
Once you have your ending inventory figure, you can calculate your COGS using this formula:
COGS = Opening Inventory + Purchases During the Period − Ending Inventory
Here’s a simple example for a candle maker:
| Amount | |
|---|---|
| Opening inventory (1 Jan) | $2,400 |
| Materials purchased during the year | $8,600 |
| Ending inventory (31 Dec) | $1,800 |
| COGS | $9,200 |
That $9,200 is your cost of goods sold — the amount you deduct against your revenue to calculate gross profit. Get that ending inventory figure wrong by a few hundred dollars and your taxable income shifts accordingly.
For a detailed walkthrough of this calculation, including how to handle labour and overhead, see: How to Calculate COGS for Your Handmade Business.
Using a Free Inventory Count Sheet
If you’re doing your stocktake on paper or in a spreadsheet, a structured count sheet keeps you organised and gives you a record you can compare year-over-year.
A basic inventory count sheet should have columns for:
- Item name
- SKU or code (if you use them)
- Unit of measure
- Expected quantity (from your records)
- Actual counted quantity
- Variance
- Notes
You can download a free inventory and COGS spreadsheet from Craftybase here: Free Inventory and COGS Spreadsheet for Excel. For a craft-specific version with separate sections for materials and finished goods, the craft inventory spreadsheet is a good starting point.
How Craftybase Makes Your Next Stocktake Faster
A manual stocktake on a spreadsheet works. But here’s the catch: every time you update quantities in a spreadsheet, the next stocktake starts from scratch. You’re always comparing against what you think you have, not a live running total.
Craftybase maintains running inventory levels automatically. Every order you record deducts the materials used (based on your recipes). Every purchase you log adds to your stock. By the time your annual stocktake comes around, your expected quantities are already calculated — you’re just verifying the physical counts match, not starting from zero.
For most Craftybase users, the annual stocktake becomes a spot-check: walk the shelves, count a few key materials, reconcile any discrepancies. An hour or two instead of a weekend.
Craftybase also calculates your ending inventory value automatically, at cost — which feeds directly into your COGS report without any manual calculation. Tax time stops being a scramble.
If you’d like to see how this works for your business, start a free trial — no credit card required.
For the full picture on managing inventory as a maker, including material tracking, preventing stockouts, and connecting with your sales channels, see the complete guide: Inventory Management for Makers.
Frequently Asked Questions
What is the difference between a stocktake and a physical inventory count?
They're the same thing. Stocktake is the British and Australian English term for what American businesses call a physical inventory count. Both refer to the process of physically counting all your raw materials, work-in-progress, and finished goods and comparing the results to your records. For makers, the term doesn't matter — the process does.
How often should a small handmade business do a stocktake?
At minimum, once a year — before you file your taxes, since you need an accurate ending inventory figure to calculate COGS. Quarterly counts are better practice: they catch discrepancies early, help you spot waste or shrinkage, and keep your reorder quantities accurate. If you sell at markets or do seasonal trade shows, a count before and after each event is also worth the time.
Do I need to count packaging materials in my stocktake?
Yes — if packaging materials are part of your finished product cost (boxes, labels, tissue paper, stickers, bags), they're inventory and belong in your count. Skipping packaging is one of the most common mistakes makers make. It leads to understated COGS and, over time, prices that don't actually cover your true cost to make and ship.
How do I value my inventory for a stocktake?
Inventory is valued at cost — what you paid for the materials, not what you sell the finished goods for. For raw materials, use your most recent purchase price per unit. For finished goods, use your cost-to-make (materials plus labour and overhead allocated per unit). Most small makers use the average cost method, which averages the cost across all units purchased. Craftybase calculates this automatically as you add purchases.
What do I do if my stocktake count doesn't match my records?
Small discrepancies are normal — update your records to match the physical count and note the variance. Larger discrepancies need investigating: check for purchases that weren't recorded, returns that weren't restocked properly, or waste that wasn't written off. If a specific material is consistently lower than expected, you may have a measurement or wastage issue in your production process that's worth addressing.
