Verifying Warehouse Equipment and Fixed Assets Before a Deal

When you buy a warehouse business or a stake in one, you do not stop at the goods. There are forklifts, racking, scanners, refrigeration units and perhaps trucks, all listed in the asset register at a value that enters the price. But the register is only a list. It does not tell you whether the asset exists, whether it works, whether the company owns it, or whether it is free of any claim. Checking this on site is easier than discovering it after signing.

Four questions for every asset

Put the same questions to every asset in the register:

1. Does it exist? In the recorded place and under the recorded number.
2. Does it work? In a condition consistent with what the register says about its age and value.
3. Does the company own it? Or is it leased, lent, or the property of the supplier or the operator?
4. Is it free of encumbrances? Or is it pledged to a lender, or subject to another party's right?

The team answers the first two questions on the floor. The third and fourth need documents and an adviser, and we come to them shortly.

Matching the register to the floor

Take the register and compare it with reality in two directions. The first runs from the register to the floor: for each asset look for the inventory number, serial number or vehicle plate, photograph the plate fixed to it and record its location. An asset that cannot be found is recorded as "not found", not "not found yet". The second runs from the floor to the register: walk through the warehouse and note every asset with no name on the list. You may find a forklift that is not in the register because it belongs to the supplier, or equipment brought onto the site with no entry. Both directions are needed, because the first reveals what is missing and the second reveals what is not yours.

Condition and operation

Record what can be seen without claiming technical expertise. For a forklift, note the reading of the hour meter and the state of the forks, tyres and battery, and start it with the driver present if possible. For racking, count the bays and levels, and look at bent uprights, unlocked beams and the plates stating the permitted load. For devices, check that they run. Ask for the maintenance records, and note the approximate age of each asset and the date of its last service: an asset twenty years old and carried at a high book value deserves a question. A full technical inspection or a safety certificate belongs to an engineer, and a count report does not replace it.

Ownership and pledges

For each major asset ask for the document by which it was acquired: the purchase invoice, the finance lease or the vehicle registration document. Record what appears on the asset itself, such as a plate stating that it belongs to a finance company. Checking whether a pledge or a third party's right exists is done by your legal adviser through the proper channels, and is not the work of a counting team. The team gives your adviser what appeared on the floor: that ten assets bear a leasing sticker, for example, so that the adviser knows where to look. If an asset is leased, ask whether the lease passes to the buyer, and on what terms.

A worked example (conditional figures)

An asset register has 25 items with a book value of 180,000 dollars. After matching, this emerges:

• 21 items exist and work.
• Two items cannot be found; their value is 14,000 dollars.
• One item exists but is out of order; its value is 6,000 dollars.
• One item exists and carries the plate of a leasing company; its value is 22,000 dollars, so it is not the company's property.

The assets in doubt come to 42,000 dollars, about 23 percent of the book value. In the opposite direction, two forklifts were found that the register does not mention, and it turned out that they belong to the supplier, so they are not counted as the company's. In this way the picture of the deal changes before signing.

In short

Ask of each asset whether it exists, whether it works, whether the company owns it and whether it is free of encumbrances. WarehouseDepo carries out the field match between the asset register and the floor: it counts machinery, racking and devices, photographs plates and condition, and gives your adviser what is needed to verify ownership. Photographs are filed under the same inventory numbers.