FacebookYoutubeLinkedIn
Live data feed: 7am 23rd May 2024         Total Business Sales: $523.9 million         ROI On Capital Invested: 28.00%         EBITDA To Owner: $159.4 million         Recent Deals: Safety Height Inspection & Fall Protection - Strategic acquisition by PE Trade Player     |     E- Commerce On-line Resume Writing - Strategic acquisition by Trade Player     |     Solar Lighting Solutions - Strategic acquisition by Trade Player

Buying A Business? Maximize Your Stock & Inventory Value

Garry Stephensen

Article Author: Garry Stephensen
Position: Managing Director
Read time: 5 mins

Share Article:

Whether your buying a WIWO (Walk in Walk Out) business or not, for any acquisition of an Australian business that involves inventory it is crucial to establish a comprehensive stocktake process before handover, to ensure that the inventory is not only up to date but also in a saleable condition. This evaluation encompasses factors such as the age of the stock and the condition of its packaging.

What Is A Stocktake Process?

The stocktake process is a meticulous evaluation of a business's inventory. It involves a systematic assessment of the quantity, quality, and condition of all items held by the business. This process plays a pivotal role in determining the value of the inventory and, subsequently, the overall financial health of the business.


Buying A Business? Check the Inventory and Stock

What Can Be Considered Stock?

Your stock encompasses a wide range of tangible assets that the business holds for various purposes. These assets are crucial for the business's day-to-day operations and its overall value. Some examples of what might be considered as "stock" in a business for sale include:

  • Inventory: This includes finished goods and products that the business intends to sell to customers. It encompasses items displayed on store shelves, products stored in a warehouse, or even goods in transit.
  • Raw Materials: These are the essential components or materials used in the manufacturing or production process. They might include items such as metals, fabrics, chemicals, or other inputs used to create the final products.
  • Work-in-Progress (WIP): WIP represents partially completed products or projects that are in various stages of production. This category can include items that are not yet ready for sale but are part of the production pipeline.
  • Supplies: Office supplies, packaging materials, and other consumables necessary for the daily operation of the business fall under this category.
  • Spare Parts: Some businesses, especially those in maintenance or repair industries, may hold spare parts for servicing equipment or vehicles.
  • Merchandise: Retail businesses may stock seasonal or promotional merchandise in addition to their regular inventory.
  • Perishable Goods: Businesses in the food industry often have perishable stock such as fresh produce, dairy products, and baked goods.
  • Obsolete or Slow-Moving Stock: This category can include items that are outdated, damaged, or have been in inventory for an extended period and may need to be discounted or disposed of.
  • Suppliers' Goods: Businesses relying on suppliers may have stock supplied by others, which can include consigned goods or goods on a supplier's credit arrangement.
  • Digital Assets: In the digital age, stock can also include digital assets like software licenses, digital downloads, or intellectual property rights.

 

Understanding the composition and value of these stock items is essential for both buyers and sellers when evaluating the financial health and potential of a business. Properly managing and valuing stock is critical to ensure a smooth transition during the sale of a business and to maximize its profitability for the new owner.

 

As seen in the Financial Review and the Courier Mail.


Parameters for Stock Age and Condition

It's important to note that the age and condition of the inventory can significantly impact its value. To establish industry benchmarks, consider "use by" codes. For grocery and frozen items, a typical benchmark is 30 days from the date of stocktake, while perishable items like dairy and bakery products may have a shorter shelf life, often around 7 days. These benchmarks are typically agreed upon either by the business conducting the stocktake or through a mutually agreed-upon arrangement between the buyer and seller during the stocktake process.


Pricing Stock for Sale

When purchasing a business, it is essential that the stock is sold to the buyer at its cost price. This principle is fundamental as it allows the new business owner to have the potential for profit when reselling the stock. A transparent transaction in this regard ensures that the buyer is not burdened with excessive costs that hinder their ability to succeed.

Read More: Setting A Realistic Asking Price


Avoiding Pitfalls: The WIWO (Walk in Walk Out) Price

While some business transactions may be structured as WIWO (Walk in Walk out) deals, buyers should exercise caution. Such arrangements may expose buyers to the risk of acquiring unsaleable stock. In WIWO transactions, sellers often bear no responsibility for the condition or saleability of the inventory, and they may reduce stock levels, negatively impacting the business's ongoing operations. Therefore, it is advisable for prospective buyers to opt for a purchase "plus Stock at Value (SAV)" to mitigate these risks and ensure a smoother transition.

Read more: Buying a Business Vs Building A Business From Scratch


Supply Chain Challenges and High Stock Levels

In recent years, numerous Australian businesses reliant on overseas suppliers have faced substantial challenges due to supply chain disruptions. This has led to a surge in stock levels held by businesses to ensure uninterrupted supply to customers. Consequently, financial statements of businesses for sale now reflect exceptionally high stock values.


Buying A Business? Check the Inventory and Stock


Navigating Unusual Stock Levels

For prospective buyers navigating the current economic landscape, it's crucial to understand that stock values may not align with historical norms due to supply issues. Negotiating stock levels when purchasing a business is possible, and there are strategies to manage these excesses effectively. If you require guidance on this complex process when selling or buying a business, do not hesitate to contact our team.

In conclusion, a comprehensive stocktake process and a clear understanding of stock value are indispensable when acquiring an Australian business. By adhering to industry benchmarks, choosing the right purchasing arrangement, and effectively managing unusual stock levels, you can optimize your investment and ensure the long-term success of your business Endeavor.

Lloyds Brokers Melbourne can provide valuable insights and assistance to help you navigate this challenging terrain and maximize your investment.

Business Broker - Garry Stephensen

Garry
Managing Director
Business Broker - Karen Dado

Karen
Director NSW
Business Broker - Geoffrey Tulett

Geoffrey
Lloyds Corporate Partner - Mergers & Acquisition Specialist
Business Broker - Edward Alder

Edward
Director Victoria
Business Broker - Kevin L Sutherland

Kevin
Director International Business Sales
Business Broker - Dianne Reynolds

Dianne
Research Director and Corporate Broker

Get In Touch

Email


 
Lloyds Corporate Brokers is a Corporate Authorised Representative under AP Lloyds Pty Ltd.
Australian Financial Services License 526061
Recent Press Releases:

Copyright 2018 © Lloyds Business Brokers 2008