Making inventory during the acquisition
The sale of a company is quite a complex business process. The main question is always: how much is my company worth? Or rather, how much will they pay for it? Determining goodwill is of key importance when selling the company, as the buyer does not want to pay more than the actual value and the seller does not want to receive less.
However, goodwill is composed of a number of factors that are difficult to measure and some factors that can be precisely determined. One of the latter is the quantity and value of the stocks owned by the company. It is advisable to be certain of those values that can be specifically determined, which is why an inventory should be taken before every sale of a company.
What should an inventory performed when selling the company extend to? What method should it use?
We have collected a number of aspects that can help in successfully implementing the entire inventory process during the acquisition:
Selecting the evaluation method
The seller and the buyer have to agree on the evaluation method to use for the inventory process. They generally use the current sale price of the goods, as the original purchase price does not reflect their actual value.
Recording the expected value
The agreement should specify the expected value of the inventory. In the interest of fair business, the sale price will change depending on whether the physical inventory is more or less than the estimated value. This helps avoid any possible conflicts between the two parties.
Selection of scraps
It is essential to note the quality and condition of every single element. Those products that cannot be sold at full price or that can only be sold with a discount have to be selected (or, rarely, with a surcharge), and also record the rate of the change. It is important to exclude from the evaluation those that cannot be sold.
The importance of accuracy
If at all possible, do not make estimates of your inventory; however, if there is no better solution or if it is financially not worth it, you can rely on an expert’s estimate or an estimation method. To calculate goodwill, it is essential that the exact data of the stocks be available. Make sure to include all products and materials in the inventory.
The necessity of physical counting
Regardless of whether you use inventory management software or not, the physical count of the stock is essential for the inventory, as the databases do not always reflect reality. Errors in receipt, recording, or picking, software errors, and pilferage may all occur, which the program does not indicate.
Making inventory together
It is recommended that the buyer and the seller perform a part of the inventory together. This helps ensure that the sale of the products takes place along the lines of a suitable principle and that the count and recording are impeccable.
Objective third party: Using an inventory service provider
Do you have too many products to count? Would it require an overwhelming amount of time and energy? Is there a confrontation between the buyer and the seller? Contracting an independent, objective service provider can resolve these issues.
A specialised company can perform the inventory-related tasks with greater precision and efficiency, ensuring the success of purchase/sale in defining stock quantities.
By: Eszter Puskás & András Takács
Sources:
http://www.americanbusinessfinders.com/blog/how-to-value-inventory-when-buying-a-business/
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