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Selling your business can be an exciting process. However, managing the logistics and pricing of your stock can be onerous, particularly in industries where you have a significant amount of stock at any one time. The key to this process is preparation and doing the groundwork in advance to work out your approach. While the final details of the sale will be decided in negotiation with the purchaser, it pays to think about your stock in advance if you anticipate it being a gnarly issue. This article covers three tips for managing stock when selling your business, including:

  • the logistics of the stocktake;
  • the nature of stock valuation; and
  • how to manage trickier types of stock.

Planning the Logistics for the Stocktake in Advance

A final stocktake for your business is a crucial piece of logistics in a business sale and purchase. If you operate in an industry where you have a significant amount of stock at any one point in time, you will need to think carefully about when the stocktake should take place and how long it will require. When it comes to settling with the purchaser, you want the most accurate and pinpoint figure possible for the amount of stock in your business. 

Some question to consider for your stocktake include:

  • whether your business’ standard stocktake procedure is sufficient or whether the sale requires a more sophisticated process;  
  • how much time the process will take and how to ensure it is complete before settlement; and 
  • if there are special items of stock that may require a separate or more detailed stocktake.

Which Valuation Method Is Best for Your Stock

How you value your stock can make a substantial difference to your business’ sale price if you operate in a stock-heavy industry. While different industries have different practices for valuation, you should think through what valuation method makes the most sense for your stock in particular. Suppose delivery costs are a significant factor in your business. In that case, it may be a good idea to seek a valuation method that reflects this cost or a portion of this cost (even if this is not the typical practice for your industry). 

Valuation of stock will be a crucial point of negotiation with the purchaser if you have a lot of stock. You should enter that negotiation prepared, with a good sense of established industry practice. Likewise, think about how the established industry practice lines up with what methodology you think makes the most sense for your business.

Differentiating Between Types of Stock

Additionally, you may need to have a plan for differentiating between types of stock in your business if you think this might prove to be a sticking point. For instance, you may have a large amount of old or expired stock in your business. Sometimes, this kind of stock is discounted completely from a stock valuation. Other times, it is partially discounted and included. If your old stock is perishable, you may need to be realistic about how much the purchaser may be willing to pay for it and be willing to discount that stock price. 

Key Takeaways

Managing stock when selling a business, particularly when you have a lot of stock, can be a tricky and convoluted process at times. Some tips for approaching this process involve:

  • thinking through the logistics for the stocktake in advance;
  • deciding which valuation method is most appropriate for your kind of stock; and 
  • considering how to differentiate between types of stock, particularly concerning old and expired stock. 

If you want to know more about how to value or manage the logistics of stock when selling your business, contact LegalVision’s business lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

Do you always need to appoint a third party to value stock?

No. While you can appoint an independent stocktaker or valuer to assess the value of your stock, doing so can be pricey. Likewise, you are not legally required to do so. This is a matter for negotiation with the purchaser. However, it is usually preferable to agree on a methodology for valuation that all parties are happy with.

What if there is a dispute with the purchaser about the value of stock?

There are a few different ways of managing a dispute with a purchaser about stock valuation. Try to reach a consensus point if possible if there are differences of opinion in terms of the correct way to value the stock. Alternatively, you could make changes elsewhere in the agreement as a way of getting consensus, such as to discount any old stock in exchange. If there is a real impasse, getting a third party such as a valuer involved may be your only option.

How should expired stock be valued?

There is no universal practice for how to value old or expired stock. As with most elements of a business sale, this is a point for negotiation with the purchaser. It also changes industry to industry. You may need to completely discount the value of old stock in a time-sensitive wholesale market, but you may be able to just partially discount old stock in a market where the goods remain largely saleable.

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