Florida Business Exchange, Inc.

The inventory of items taken just prior to closing is an important step and there are a few possible pitfalls buyers and sellers should be aware of.

When I take a listing I ask the seller for the estimated value of the inventory. I stress that the value will be adjusted at closing. This could result in the sale price being higher or lower.

It will often be months between the time a listing is taken and when the inventory is taken and the value could change dramatically.

We had a good discussion of this process at a meeting of FBX brokers and I think the information is worth sharing.

If when I take a listing the seller estimates his average inventory to be $5,000 I will encourage him to list the estimate at a slightly higher figure, say $6,000, but I explain that if the actual value is only $5,000 the sale price will be reduced.

When the inventory is taken, typically the night before a closing, there are a number of key points.

1.     The buyer does not have to accept any items that are expired or unsaleable for any reason.

2.     The buyer does not have to accept any open containers.

3.     The seller must be able to document the cost of all items.

Having said that often the buyer will accept items that are open if he believes it is in his best interest, but he is not required to do so.

So, what happens if the value comes in lower than the estimate? The sale price is reduced. The seller really isn’t losing because he is being compensated for the actual value.

What happens if the value is higher? That isn’t as clear. There are several possibilities.

1.     The buyer can agree to pay for the additional inventory.

2.     The buyer can have the additional value added to a note if that is part of the transaction.

3.     The buyer can reject the additional value and choose the items he wishes to take as long as it meets the stated value.

If the business is one in which the inventory is used rapidly, say a food service business, I recommend buyer and seller coordinate a week before the closing to discuss the inventory. The buyer and seller may agree to have the business well stocked in order to meet customer demand immediately before and after the closing.

Jon Hunt

Senior Associate

jonhhunt@bellsouth.net

904.823.7225