As a business buyer, the number that will be at the center of your attention throughout the business transaction is the purchase price. Just how much are you willing to pay for the business, and how does the seller arrive at their asking price? These are important considerations, and as you progress through the due diligence phase, you will be evaluating the value of the business. The first part of your evaluation may be the inventory.

Part 1: The Inventory

What is the inventory? The inventory includes any materials and products that are used for resale or for client services.

It is very important that you personally, or a trusted and qualified representative, are present for and participate in any inventory examination. You will need to know the inventory status in order to give it a proper evaluation. You should also request the inventory counts from the end of the previous fiscal year.
You may need to have the inventory appraised if you are unable to properly appraise it yourself. The inventory counts as a hard asset, so you will need to know what dollar value to assign to it.

An important point to keep in mind is the value of the inventory is something that can be negotiated. If the inventory is incompatible with your target market, or in poor condition, these are points to be brought up during negotiations

Please see Part 2: Equipment and Furnishings and Part 3: Financial Records and Contracts for a continuation of Evaluating the Value of a Business Before You Buy

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com