Tuesday, 28 August 2012

Understanding inventory when selling your business

Reporting a lower inventory to their accountant is something many business owners have been doing for a long time.  And many accountants just accept the number.

In addition to the obvious concerns, when it comes to selling the business, big problems can arise.

Can the inventory be verified and accurately costed?  Is all the stock of reasonable age?  Is the inventory current and saleable?

There are many thing business owners can do to make their businesses more marketable.  Up-to-date and accurate financials, diverse customer base and vendor list, and key personal in place are all great ways to maximize value at point of sale.

A lesser known yet impactful characteristic of a business for sale is its inventory. 

Consider the scenario of a business with aged, damaged or redundant inventory.  While those assets can be shown on the books, and in many cases to banks for financing, they will be viewed negatively at point of sale.  Buyers may trust but will verify and eventually discover inventory misgivings as deep into the process as at the closing table.

The best way to overcome this pothole is to give their accountant an accurate inventory value each year, to regularly clean-out and clear-out non-saleable goods and damaged items and to have a systems to monitor and control levels for busy and slow seasons.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

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