Stop Letting Dead Stock Sink Your Business

30 Nov

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Most small businesses do not lose money because their products fail. They lose money because cash gets trapped in dusty shelves, forgotten storerooms, and boxes of inventory that owners hope will sell one day. Obsolete stock is one of the biggest profit leaks in South Africa’s SME sector. Yet many business owners do not know how to identify it, manage it, or account for it correctly.

This is the moment where accountants can step in. Managing obsolete stock is not just technical clean-up. It is a strategic cash-flow intervention that supports job creation, stabilises businesses, and positions accountants as economic enablers. This is fully aligned with the CIBA philosophy that our members are architects of growth and not passive compliance processors.

It is also a practical advisory service that accountants can charge for. Clients see immediate value because the outcome is direct. They improve cash flow, reduce SARS risk, avoid inflated closing stock, and gain clearer financial statements.

What Exactly Is Obsolete Stock in an SME?

Obsolete stock is inventory a business can no longer sell at its normal price. In many cases, it cannot be sold at all. Any of the following items can be considered obsolete:

Expired goods
Damaged or deteriorated items
Products that customers no longer buy
Older models replaced by newer versions
Technology that is outdated
Inventory that has not moved for months

If it sits on a shelf without generating income, it is tying up the cash SMEs desperately need to survive in a difficult economic climate.

How to Identify Obsolete Stock in a Small Business

Many accountants assume that identifying obsolete inventory requires complex systems. It does not. Even very small businesses can do this with simple tools.

1. Stock Ageing Analysis

Prepare an ageing schedule for all stock. Use broad categories such as 0 to 30 days, 31 to 60 days, 61 to 90 days, 91 to 180 days, 6 to 12 months, and items older than one year.
Stock older than six months with little movement is a concern. Stock older than one year is usually obsolete.

2. Movement Tracking

Review sales patterns. If an item has no sales for three to six months, demand is low. If it has no sales for six to twelve months, demand has disappeared.

3. Physical Stock Counts

During stocktake look for items that are expired, damaged, dusty, old, or repeatedly avoided by customers.

4. Supplier and Market Information

If suppliers discontinue a line or if consumer preferences shift, that stock becomes obsolete very quickly.

5. Employee Insights

Sales and warehouse staff often know exactly which items customers avoid and which ones stay on the shelf too long.

What To Do Once You Identify Obsolete Stock

Here is where accountants deliver high value. You do not simply identify the problem. You help the client unlock trapped cash and restore financial accuracy.

Accounting Treatments According to IFRS for SMEs Section 13

1. Write Down to Net Realisable Value

If the stock can still be sold, but only at a discount, record it at the lower of cost or net realisable value. This prevents overstated assets and protects the client from SARS scrutiny.

2. Full Write Off

If the stock has no market value, write it off completely.
The entry is:
Debit Obsolete Inventory Expense
Credit Inventory

This gives a true reflection of the business’s financial position.

3. Provision for Obsolescence

Where stock is likely to become obsolete in future, but not yet unsellable, a provision can be raised. This helps smooth profits across periods.

4. Impact on Profitability

Write offs and write downs reduce gross profit. This creates an opportunity for accountants to teach clients how to improve stock management and purchasing decisions.

Business Actions That Follow the Accounting Treatment

1. Discount and Sell Quickly

Mark down items, bundle them, or sell them in bulk to recover some cash.

2. Speak to Suppliers

Some suppliers accept returns or issue credit notes. This is more common than clients expect.

3. Donations for Tax Advantages

Certain donations to approved public benefit organisations qualify for Section 18A deductions. Always confirm eligibility first.

4. Repurpose or Rework the Goods

Manufacturers or creatives can sometimes repack, recycle, repair, or reconfigure items into something sellable.

5. Dispose Responsibly

If goods cannot be used or sold, dispose of them safely. Keep documentation for SARS and audit purposes.

Why This Matters for South Africa’s Small-Business Economy

Poor inventory management is one of the leading causes of SME failure. Obsolete stock consumes working capital and reduces profit. Helping clients manage this directly improves their competitiveness and stability.

By doing this, you help build stronger firms, protect jobs, and support economic resilience.

How Accountants Can Turn This into a Paid Advisory Service

Most accountants underestimate how valuable this service is to clients. Managing obsolete stock can become a regular, chargeable engagement because:

You help clients find hidden cash
You protect them from SARS queries about stock inflation
You improve their profitability
You strengthen their decision making
You help them control waste and avoid unnecessary purchases

Final Message

Every rand trapped in old inventory is a rand that is not funding growth, salaries, energy solutions, or expansion. When accountants guide clients through identifying and managing obsolete stock, they do far more than clean up financial statements. They enable sustainable businesses and stronger communities.

This is the kind of work that positions accountants as trusted partners in South Africa’s development story and reinforces CIBA’s belief in accountants as nation builders.

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