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.
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.
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:
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.
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.
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.
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.
