Inventory has the potential to be a point of contention when buying and selling a business. Taking inventory is an essential component of completing a transaction of this magnitude. However, there is the potential for the inventory count to prove divisive between the buyer and seller. If you sense there will be an argument about inventory counts or valuation, it might be best to rely on an outside party like an inventory management software to perform the inventory on your behalf. Otherwise, you run the risk of having the deal fall through simply because trust is lost over inventory count and/or quality.
How Much is the Inventory Worth?
If you do not know how much your inventory is worth or whether your inventory valuation is accurate, it will be a point of conflict with prospective buyers. Sales agreements often specify dollar values for inventory as well as stationary property, intangible assets and equipment. The buyer might question whether the current inventory valuation is accurate. As noted above, the better course of action might be leaning on an unbiased, completely objective third-party to perform inventory counts and valuation to ensure accuracy.
Inventory Changes After the Count
Inventory is likely to change between the point at which it is counted and the actual sale date. If there is less inventory or more inventory than estimated, either the buyer or seller will feel as though an injustice has occurred. Adjust the closing price as necessary to reflect alterations in inventory and the deal will prove mutually beneficial.
Be Careful When Selecting an Inventory Counter
If you decide it is prudent to let an objective third-party inventory specialist perform the count, do not hire any old business for this important project. Ideally, the business buyer and seller will agree on an inventory specialist to perform the count. The inventory counter selected should be licensed by the state and have years of industry experience. This company should have a database, the latest inventory counting technology and a track record of success.
What Happens if the Inventory is Higher Than Expected?
If it turns out the inventory is more than expected, the buyer can request for the inventory to be reduced. The other option is for the buyer to ask the seller to eat the cost of excess inventory. Plenty of sellers are willing to provide slightly more inventory than anticipated to grease the wheels of business and keep the deal moving along as planned. It is also possible for inventory to be high due to the inclusion of obsolete inventory. If inventory is no longer useful or egregiously slow to sell, the seller will be pressured to discount part of the current stocks.
Strive for a Mutually Beneficial Solution
Contention over inventory prior to the point of a business’s sale should not be a deal-breaker. The buyer and seller should be able to reach common ground without the deal falling apart. If each side is willing to budge a little bit on the issue of inventory counts and valuation, the sale can move forward, proving mutually beneficial to both sides.
About the Author:
Marla DiCarlo is an accomplished business consultant with more than 28 years of professional accounting experience. As co-owner and CEO of Raincatcher, she helps business owners learn how to sell a business so they can get paid the maximum value for their company.
