Sell Your Company For More Money: Dump Your Excess Stock.
When selling a company, the business owner places a premium on maximizing value. Inadequate inventory management resulting in excess inventory is one factor that might reduce the value of a company. Maintaining adequate inventory levels is crucial for optimizing value.
When running a firm, the objective should be to tie up as little capital as possible in inventory while still maintaining an enough amount of inventory to satisfy regular business needs. Ultimately, a potential buyer interested in acquiring your organization would choose fully flexible cash over less flexible inventory that weighs down profits. Any additional dollar that can be found to improve the bottom line earnings when selling an enterprise will result in a higher sale price.
There exists a point at which carrying inventory costs more than not carrying inventory. Profitability and cash flow can quickly be decimated by carrying unnecessary stock. Not only does excess inventory tie up a substantial amount of cash, but it also incurs expenses on a daily basis. From the expenditure of financing that inventory to the costs of markdowns due to age and obsolescence, to the added payroll costs of moving it around, to the hidden costs of not being able to merchandise more productive inventory in its place, all of these costs mount up and impact the bottom line.
These costs have an impact on the business’s profitability and include, but are not limited to, the following:
Cost of Capital – There is a cost associated with the capital that you have committed to inventory, which may take the form of interest paid for financing the inventory. With each sale, cash is earned, hence driving the operating cycle. Cash is utilized for inventory purchases and payment of expenses.
But when inventory levels are excessive, cash is tied down in inventory. In instances where inventory is not being converted to cash efficiently, an expanded credit line is required. Clearly, it is costlier to pay more interest on the rising debt when you should be generating those funds internally.
There is a cost associated with occupying space in a warehouse. You could be leasing more space than you require. There may also be increased utility costs connected with leasing this larger location.
Handling – There are costs connected with servicing and managing inventories, including material handlers and record keepers.
Opportunity Costs – These are the costs linked with the funds you are unable to invest elsewhere. This cost can be assessed by analyzing what the money could have been used for if it had not been spent on inventory. Whether it was to invest in new technology, equipment, or personnel, or something else, that money could have been used for something else. Any better returns that could have been earned from these other investments represent a missed opportunity and a cost associated with carrying inventory.
Insurance and Taxes – You may be spending more than necessary in taxes and insurance rates to retain surplus inventory.
Possibility of obsolescence – Excess inventory increases the likelihood of obsolescence, degradation, or damage.
Increased Marketing and Advertising Expenses — If you carry an excessive amount of inventory, you will incur additional and likely unanticipated selling and advertising costs in order to sell the excess merchandise.
There are further inventory related obstacles that can prevent the effective selling of a business. Prior to presenting the firm for sale, be careful to discuss any inventory concerns you may have with your business broker.
Our best advice? Don’t waste another day and talk to a Sunbelt South Florida broker today!
Sunbelt Business Brokers of West Palm Beach provides dedicated business brokerage services for all of your selling needs. Whether you are an established business owner nearing retirement and looking to sell, or an ambitious entrepreneur seeking your next investment opportunity, there is no reason to look beyond Sunbelt Business Brokers. Visit us at 800 Village Square Crossing
Suite 216 Palm Beach Gardens, FL 33410 or contact us at (561) 832-9222.