By [TrickDigi]
There is a dirty word in retail that nobody likes to talk about.
Shrink.
“Shrinkage” is the polite corporate term for inventory that simply vanishes. It’s the difference between what your computer says you have and what is actually on the shelf.
For the first two years of my business, I operated on a strategy called “Blind Trust.” I hired nice people, I treated them like family, and I assumed they would treat my business with respect.
Then came the Annual Inventory Count of 2023.
I stayed late with a scanner, counting every SKU. When I ran the variance report, my stomach dropped. We were missing $6,000 worth of inventory.
At first, I blamed shoplifters. I blamed the “teenagers with backpacks.” But deep down, looking at the specific items missing (high-end electronics/clothes that are kept behind the counter), I knew the truth.
The call was coming from inside the house.
Here is how I audited my business, uncovered the internal theft, and cut my shrink by 50% without turning into a paranoid tyrant.
The Myth of “Ocean’s Eleven”
When we think of employee theft, we imagine staff stuffing cash into their pockets. But I learned that modern retail theft is much more subtle.
It is called “Sweethearting.”
This is when an employee gives unauthorized discounts or free items to their friends and family.1
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They scan 3 items but bag 4.
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They manually override a price to give a “damage discount” on a perfect item.
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They abuse the “Void” button.
My employees weren’t emptying the register. They were simply being “generous” with my money.
The Audit Strategy: “Trust but Verify”
I couldn’t fire everyone and start over. I needed proof, and I needed a system. Here are the three steps I took to stop the bleeding.
1. The “Exception Report” Ritual
Most business owners look at the “Total Sales” report. I stopped looking at that.
Instead, I started printing the POS Exception Report every Friday.
I looked for three red flags:
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High volume of “No Sale” rings: Why is the drawer opening if no money is coming in?
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High volume of “Voided Items”: This often means an item was scanned (so the customer saw the price), and then voided out before payment (so the cash didn’t hit the drawer).
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Price Overrides: Who is manually lowering prices, and why?
The Result: I noticed one specific employee had 4x the amount of “Voided Transactions” as everyone else.
2. The Camera Sync
I didn’t want to accuse anyone without evidence.
I upgraded my security system to a cloud-based setup that allowed me to timestamp the video.
I took the timestamp from the suspicious “Void” on the receipt (Tuesday, 2:14 PM) and watched the video footage from Tuesday at 2:14 PM.
The footage was clear. The employee scanned an item, hit “Void,” and the customer (a friend) left with the bag without paying.
3. The “Culture of Accuracy” Meeting
I had to let that employee go. It was incredibly painful. But afterwards, I called a team meeting.
I didn’t yell. I didn’t threaten. I simply changed the vocabulary we used.
We stopped talking about “Theft” and started talking about “Accuracy.”
I told the team: “If our inventory is wrong, the computer automatically re-orders the wrong products. If we re-order the wrong products, we lose money. If we lose money, I can’t pay bonuses.”
I connected their paycheck to my inventory count.
The Data: Before vs. After the Audit
Implementation of these strict auditing protocols took about 3 months. The next inventory count told a very different story.
| Metric | Year 1 (Blind Trust) | Year 2 (Trust but Verify) |
| Total Sales | $450,000 | $475,000 |
| Inventory Shrinkage ($) | -$6,000 | -$2,800 |
| Shrinkage % | 1.3% | 0.58% |
| Net Profit Saved | – | +$3,200 |
By simply paying attention, I put $3,200 back into my pocket. That is the equivalent of selling an extra $10,000 worth of goods, achieved just by plugging the holes in the bucket.
Conclusion: You Are Not “Family”
The hardest lesson for me was realizing that a business is not a family. It is a team.
In a family, unconditional trust is required. On a team, performance and adherence to rules are required.
I still treat my staff well. We have pizza parties; we have fun. But I check the Exception Reports every single Friday. And interestingly, the honest employees prefer it this way. They know that nobody else is getting away with slack, and their hard work is being measured accurately.
Don’t be afraid to audit your business. The honest people won’t mind, and the dishonest people… well, they shouldn’t be there anyway.
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Disclaimer: I am not a lawyer or HR professional. Employment laws regarding termination and surveillance vary by state and country.2 Always consult with legal counsel before accusing an employee of theft or installing cameras.
