Selling Your Stake: Preparing Stock Records for a Buyer's Audit

When you decide to sell your stake in a trading business, the buyer's team will test your stock. Stock is usually the largest and the least certain item on the balance sheet, and buyers know it. If your records are clean, a recent independent count is in your hands and old goods are explained before anyone asks, the audit goes quickly and your price is protected. If they are not, every unexplained line becomes a reason to ask for a lower price or a retention. Preparing the stock records is cheap compared with what is at stake.

What a buyer will test

• Whether the stock list matches the shelf, by a sample or by a full count.
• Whether goods are valued sensibly, especially old, slow-moving and damaged goods.
• Whether any goods belong to others or are held on consignment.
• Whether the records near the sale date support a clean cut-off.
• Whether purchase costs can be traced to invoices.
• Who has changed balances, when and why.

Behind all these tests sits one question: will the figures I see today still hold on the day the sale closes? Records that can be traced answer it better than any assurance.

Put the records in order

Gather the papers in the order a buyer will ask for them:

1. A current balance export, dated, with item, batch, location and unit.
2. A table matching item names to codes, so that one product is not seen as three.
3. The receiving and dispatch documents for the recent months, filed by date.
4. A list of consignment goods and goods held for third parties.
5. A list of damaged, returned and quarantined goods.
6. An ageing report showing how long each line has been on the shelf.
7. Earlier count sheets and the notes on how differences were settled.
8. A log of balance adjustments, each with a reason and an approver.

The last item matters more than it seems. Adjustments with no explanation are the first thing a careful buyer looks for, because they show how the numbers were made to fit.

Commission your own independent count first

A recent independent count answers many of the buyer's questions before they are asked. Do it four to eight weeks before the buyer's team arrives, so that you have time to settle what it finds. Fix paperwork errors and correct codes. Resolve what can be resolved and write up what cannot. Then keep the report, with its photographs and its cut-off, in the same folder as the other records. Once the count is done, do not change balances without a written reason. The buyer may still count for himself, but if his figures are close to yours, the discussion is short. A workable timetable looks like this:

1. Eight weeks before: export the balances, build the mapping table and settle the scope.
2. Six weeks before: the independent count, with the buyer's representative invited to watch if he wishes.
3. Four weeks before: close the open differences and update the records, each change with a reason.
4. Two weeks before: finalise the summary and assemble the folder.

Explain the old goods

Every warehouse has goods that did not sell. Hiding them costs you more than showing them. List the old lines by age and give the reason for each: seasonal leftovers, a discontinued product, goods awaiting return to the supplier. Then propose a treatment, such as selling down, writing down or taking them out of the price. How a write-down should be shown is a matter for your accountant. Be honest in the valuation: an optimistic figure that collapses during the buyer's count costs you credibility as well as money.

An example (conditional figures)

The books show stock of 600,000 dollars. Of this, 90,000 is older than twelve months and 15,000 is damaged. A seller who has sorted these lines himself can present: sound stock of 495,000 at cost, aged stock of 90,000 at an agreed 50 percent, which is 45,000, and damaged stock at zero. The offer is 540,000, and the discussion is about the percentage. A seller who has not done so lets the buyer discover the same 105,000 alone, and the buyer will start to doubt every other figure as well.

In short

A buyer pays for stock he can believe. WarehouseDepo can carry out an independent count before the sale and prepare a summary with photographs, which you can show to prospective buyers; how much weight they give it is their own decision.