How To Audit Inventory for Shrinkage, Spoilage, or Errors: 4 Tips for Quilt Stores

Inventory.

The word alone is enough to make a small business owner groan.

If you own a quilt or fabric store, you probably look forward to inventory day about as much as you look forward to paying taxes. It’s often viewed as a painful, necessary chore — something you do for the accountant or compliance.

But what if a simple, monthly inventory audit isn’t just about compliance? What if it’s actually your single most powerful tool for protecting your profits and saving you thousands each year?

In this blog, we reframe your dreaded audit, not as a tick-box exercise, but as an essential process of catching what’s truly missing, miscounted, or damaged in your quilt store. It’s a step that stops small, unnoticed errors from eroding your margins.

Here’s how to get started.

How Small Inventory Errors Add Up to Big Losses

Shrinkage, spoilage, and simple errors are rarely dramatic events, like theft or robberies. More often, it’s a slow, quiet bleed on your profit margin.

In a quilt store, where inventory is measured in fractions, prone to damage, and frequently managed manually, these small mistakes can quickly drain thousands of dollars in annual profit before you realize they’re gone.

The true threat lies in these small, repeated missteps in daily operations that you don’t even know are happening:

• Fractional rounding errors: When cutting fabric, consistently rounding down by a tiny margin (like 1/4 inch or even 1/8 of a yard) adds up. Do this on 20 different bolts a month, and you’ve given away several yards of free fabric, costing you material and profit.
• Mis-scanned barcodes: The wrong precut is scanned as a standard bolt of fabric. A kit was sold, but the individual components weren’t deducted. Your system believes you have the inventory, but your shelves tell a different story, leading to missed reorders and disappointed customers.
• Forgotten precuts: High-value, prepackaged items like jelly rolls, layer cakes, or fat-quarter bundles are often stored outside the main fabric shelving. When physical inventory is counted, these items are frequently forgotten or miscounted, creating a phantom inventory that isn’t there when you need to sell it.
• Damaged fabric (spoilage): A water stain, a sun-bleached corner, or a fabric bolt that falls behind the shelf — even small instances of damage makes the fabric unsellable at full price. But it still shows up as an asset on your books until you formally write it off.
• Unlogged customer returns: A customer brings back a cutting mat or a kit, but the item is placed back on the shelf without being logged back into the point of sale (POS) system. Your system still thinks the item is sold, and you can’t figure out why your physical count is higher than your digital count.

These inaccuracies show up as the painful reality you experience every month. An effective inventory audit is what stops this slow bleed from stealing your profits.

Related Read: What Is Fractional Yardage? (And How To Track It)

4 Essential Tips for a Quilt Store Inventory Audit

It’s easy to identify the problem, but what’s the solution? Your goal is not a massive, annual all-hands-on-deck inventory count. Instead, you need a simple, repeatable monthly process that addresses the unique challenges of a quilt store. When you focus on these four areas, you can catch many of the errors before they cost you.

1. Spot-Check Your Inventory for High-Risk and High-Value Items

Instead of counting every bolt, prioritize your limited time on items that are most likely to be miscounted or are too valuable to lose:

• Check high-value bolts: Identify your most expensive or popular fabric lines. A one-yard error on a fabric selling for $20 per yard is far more damaging than on a clearance item. Review these monthly.
• Count high-turnover items: These are the products — like batting, popular notions, or bestselling patterns — that move quickly. More transactions mean more opportunities for error. A quick check of these can flag problems before they grow.
• List the discrepancies: Run a simple report from your POS system showing items with the largest variance between the system’s expected count and the last-known physical count. Prioritize verifying these in person immediately.

2. Focus on Fractional Yardage

In a fabric store, every audit must include a dedicated process for tracking yardage and fractional cuts. This is where most inventory shrinkage happens, usually due to human error:

• Audit fabric: Choose 10 random, recently sold bolts per month and physically measure the remaining yardage. Compare that measurement with the remaining yardage shown in your POS system. If the system consistently overstates the amount, it indicates a rounding or measurement issue that staff training can fix.
• Review minimum thresholds: Check bolts that your POS system shows are near the minimum reorder level. This prevents you from promising a customer two yards only to discover the bolt has just 1½ yards due to a past measurement error.

3. Review Damaged and Obsolete Inventory

Spoilage is fabric that is no longer sellable at full price. If a bolt is damaged but still counted as a full asset, your inventory records are lying to you. Follow these steps to account for it in your system:

• Sweep monthly for damage: Designate a specific day each month to walk your floor, specifically looking for water-stained or sun-bleached ends (near windows), or bolts with dust-soiled bottoms.
• Write off losses: When you find damaged material, log it as spoiled or written-off yardage in your POS system. This removes the unsellable asset from your inventory, gives you a true cost of spoilage, and provides accurate data for taxes.

4. Reconcile Unscannable and Off-Shelf Items

Your most valuable kits and precuts are often stored creatively — in baskets, hanging displays, or backroom bins — and are easily overlooked in a standard item-by-item count. Use these steps to get accurate data:

• Check kits: Create a dedicated checklist for all high-value, packaged goods like patterns, quilt kits, jelly rolls, and fat-quarter bundles. Verify the number of individual kits — not the component parts — against your system count.
• Verify kit contents: Spot-check a small number of kits to make sure all internal components are present, so no kit is missing a fat quarter. A complete kit is sellable. An incomplete one counts as spoilage.
• Process returns: Make sure staff follow the absolute rule: No return goes back onto the shelf until it has been logged back into the POS system. This stops the confusion that comes from finding a customer return that was never logged and prevents it from throwing off your reconciliation.

Integrate these four simple, focused audit tips into your monthly routine, and you shift from hoping your inventory is correct to knowing where your profits go. Start small, be consistent, and watch those quiet losses turn back into pure revenue.

Do the Math and See the Impact

The small errors described above may seem insignificant at the moment, but a monthly audit is necessary to stop their compounding effect. When you assign a dollar amount to them, you see exactly how quickly your margins drain away.

Example: Fractional Rounding Errors

Imagine you and your staff consistently round down or lose just 1/4 yard of fabric on 20 different bolts over the course of a busy month.

Fabric loss: 20 bolts × 0.25 yard per bolt = 5 yards lost.

Retail value lost: At a conservative retail price of $15 per yard, that’s 5 yards × $15 per yard = $75 lost in one month.

If this trend continues for a year, that small, repeated rounding error alone costs your business $900 in unbilled merchandise — nearly a thousand dollars of pure profit gone.

Example: Forgotten Precut Kits

Precut quilt kits, jelly rolls, and layer cakes are high-value, high-profit items. They’re often stored off-shelf and forgotten on inventory day.

Retail value lost: A single standard quilt kit or jelly roll has a retail value of $40–$60.

The cost of “can’t find it”: If you forget to log a kit back in after a return, or simply can’t locate one when a customer is ready to buy, you lose the entire retail sale of $40–$60, plus the potential repeat business from a happy customer.

The loss of just one forgotten kit a month, combined with the rounding errors, puts your annual inventory losses easily over $1,500. This is the financial impact an effective audit is designed to stop.

Related Read: Kit Assembly: How To Manage Bundles and Kits in Your Fabric Store

Simplify Your Inventory Audit With Like Sew

We’ve outlined an essential monthly audit process, but it doesn’t have to be a manual, hours-long project. Your POS system is the single most important tool in your fight against inventory loss. A POS system designed for fabric and quilt stores, such as Like Sew, automates the most tedious and error-prone parts of the process.

Here’s how Like Sew simplifies your inventory audit:

• Automated inventory counts: Inventory reconciliation is pulled directly from your POS data. Instead of trying to manually compare paper counts to system numbers, Like Sew provides a real-time, easily digestible record of what should be on your shelves, drastically reducing the time it takes to find missing stock.
• Barcode scanning tools: Accurate scanning is critical when handling high volumes of unique precuts, notions, and kits. Our tools are intuitive, minimizing the chance that a new precut is mis-scanned as a standard bolt of fabric or that a kit’s components aren’t deducted properly.
• Variance reports: You don’t have time to review every item. Like Sew clearly identifies the highest discrepancies between your system count and your last-known physical count, allowing you to immediately spot-check the items most likely to be missing, damaged, or miscounted. This saves time and focuses your efforts where they matter most.
• Min/max visibility: An effective audit also involves planning for the future. By clearly showing your reorder points and min/max levels, Like Sew helps prevent the dual problem of overstock — reducing the risk of sun-bleaching or dust-soiling — and understock — preventing missed sales due to low inventory lost to a past fractional error.

Schedule a demo to see how Like Sew can help you effectively manage your inventory.