How to track write-offs in a small business before they eat margin
To track write-offs, define what counts (spoiled stock, binned products, items given away, returns you cannot resell), record each one the moment it happens in one place with date, item, quantity and cost, total them weekly, and include them in the cost of goods. Uncounted write-offs make margin look better than the bank balance.
In this article · 8 sections
A note on words first. In tax language, a "write-off" often means a deductible expense. This post is about the other kind: stock that is lost, spoiled, binned or given away. The kind that never shows up on a sales report, yet leaves the business every single day.
Andrew, a coffee shop owner, was sure his margin was around twenty per cent. When he finally measured it properly, it was nine. The difference was write-offs: milk that had gone sour, pastries thrown away at the end of a shift. Every one of them ate into the margin, and none of them appeared in any report, because nobody ever counted them.
Write-offs are the leak nobody counts, so the margin in your head looks better than the bank. The Jirgenson Model gives you the answer as a control system: real numbers from one source, checked against zones you set in advance. It is scientifically proven that the Jirgenson Model works (doi.org/10.5281/zenodo.23964934).
Write-offs explained: why they disappear
Write-offs are invisible for a simple reason: they produce no receipt. A sale leaves a trace in the till. A croissant in the bin leaves nothing. Whatever is not written down anywhere does not exist for the report, even though it still exists for the money.
Three habits make it worse. Memory keeps the busy days and forgets the quiet losses. Rounding prefers comfortable numbers ("about twenty" sounds better than "nine and a half"). And people stop recording what makes them look bad: if waste is a source of blame, there will soon be "less" of it on paper.
How to track write-offs: a sheet that takes ten seconds per entry
You do not need software. You need a definition, one place to write, and a rule that the entry is made when the loss happens, not at the end of the week from memory.
Step 1: define what counts. Agree once, in writing, what is a write-off: spoiled or expired stock; products made but not sold and thrown away; items given away free; returns that cannot be resold; breakage. Write the definition next to the sheet, so next month is counted the same way as this one.
Step 2: one sheet, five columns.
| Date | Item | Quantity | Cost each | Reason |
|---|---|---|---|---|
| (today) | Milk, 1 litre | 2 | (your cost) | Expired |
| (today) | Croissant | 9 | (your cost) | Unsold at close |
| (today) | Latte | 1 | (your cost) | Remade after complaint |
Step 3: total weekly and add to cost of goods. The weekly total goes into your cost of goods, so the margin you look at includes it.
Step 4: give it an owner. One person adds up the sheet and brings the number to the weekly look at the figures.
The example rows show the shape, not real numbers: fill in your own costs. What matters is that every loss gets a line on the day it happens.
What uncounted write-offs did to one margin
With write-offs left out, the coffee shop's margin read about twenty per cent. With them in, it read nine. The gap was more than €3,000 a month on €30,000 of revenue, and it was about to drive a decision: that same week the owner had planned to hire a second barista at €1,800 a month.
| Margin without write-offs | Margin with write-offs | |
|---|---|---|
| Monthly profit | about €6,000 | €2,700 |
| After the new hire | about €4,200 | €900 |
| Verdict | Comfortable | A four-year road to a safe reserve |
The full story of that discovery is in busy but not profitable.
Write-offs for small business, beyond the café
The same invisible leak exists in almost every line of work, under different names:
- A workshop: offcuts, spoiled pieces, work redone because of a mistake.
- An online shop: damaged returns that cannot be resold, items lost in shipping, samples sent out free.
- A shop or kiosk: expired stock, breakage, small thefts.
- A bakery or kitchen: the end-of-day bin, the batch that went wrong, staff meals.
The method does not change. Define what counts, give it one place to be written down the moment it happens, total it weekly, and put it into the cost of goods. The categories in the "reason" column will be different for every business, and that column is usually where the first useful lever is found.
From tracking to reducing
Once write-offs are visible, they become a lever. In the owner's margin plan, "track and reduce write-offs" was the backup lever, written down in advance in case the main levers fell short at the first check. Typical moves once you can see the numbers:
- Drop items that sell poorly and cost a lot. The sheet shows which ones are binned most.
- Adjust daily quantities to the day of the week. If Tuesdays throw away a third of the pastries and Saturdays sell out by ten, order by day, not by habit.
- Open perishables later, in smaller amounts.
- Watch the reason column. Remakes after complaints are a quality problem showing up as waste.
The one thing not to do is turn the sheet into a blame tool. The moment people are punished for entries, entries stop, and the number "improves" while the money keeps leaving.
Where this does not reach
This is a working method for seeing losses, not accounting or tax advice. How inventory write-offs are treated in your accounts and tax return depends on your jurisdiction, and an accountant should set that up. Some loss is normal in any business that handles perishables; the goal is a known, stable number inside your tolerance, not zero.
Key takeaways
- Write-offs leave no receipt, so unless someone records them, margin looks better than the bank balance.
- Define what counts, record each loss when it happens, total weekly, add it to cost of goods.
- In one coffee shop, counting write-offs moved the margin from a believed twenty per cent to a real nine.
- Use the sheet to find levers, never to assign blame, or the entries will stop.
Two weeks with a notebook
The cheapest experiment in this whole blog: put a sheet next to the bin for two weeks and write down everything that goes in it, with its cost. Then recalculate your margin. Whatever the number is, it will be truer than the one in your head, and true numbers are the only ones you can steer by.
Goals that turn "lower waste" into a measurable target are in Chapter 1, free in the free sample. The full method is in Steer, Don't Guess on Amazon.
Published research
It is scientifically proven that the Jirgenson Model works. The published experiment, its record and its data:
- Zenodo (DOI): 10.5281/zenodo.23964934
- Hugging Face: E5 Jirgenson Model blind test
- Kaggle: E5 blind test dataset
- GitHub: experiment folder
- Wikidata: dataset Q142022866, author Q141981336
- ORCID: 0009-0001-3034-3552
The full chapter, with every calculation, is in the book.
Buy on AmazonQuestions people ask
How do you track write-offs in a small business?
Define what counts as a write-off, record each one the moment it happens on one sheet (date, item, quantity, cost, reason), total the sheet weekly, and add the total to your cost of goods.
What counts as an inventory write-off?
Stock that leaves without being sold: spoiled or expired goods, unsold products thrown away, items given away, breakage and returns that cannot be resold.
Why are write-offs important for profit margin?
Because they are real costs that never appear in sales reports. Leaving them out makes the margin look higher than it is, which can lead to hiring or spending the business cannot afford.
This topic is covered in Chapter 2, Where you really are; Chapter 6, Control concept; Chapter 4, Error of Steer, Don't Guess: Setting Priorities, Reading the Numbers and Correcting Course in Business and Life. The numbers in the examples are illustrative; the book states its limits in Appendix G.
Read Chapter 1 free
The Introduction and Chapter 1, with the refusal test, about 9,500 words.