What about your stock level?
Your stock level. It’s one of the essential questions commercial brokers should ask you in the first meeting. Commercial brokers often want to sell quickly, while it is sometimes better to wait. The example in this article is one of many in which the entrepreneur should be advised to consider waiting a while.
Imagine the following situation:
- You have high current stock levels. You have a healthy margin on your products, and you buy large volumes because the prices of your supplier in China are continually rising. Today, the products are cheaper than they will be tomorrow.
- You have € 800,000 in current stock, and therefore you are never out of stock. You even use this as a service to your customers.
- Your negotiating position concerning your supplier is steadfast, because you are never under time pressure to buy stock.
- You sell € 400,000 a year, receive € 1,000,000 in revenue, and make € 400,000 in profit.
It seems like a strong position to put to the potential buyer of your company.
Too high stock levels
Stock that takes longer than a year to sell is most often valued at only 25% of its actual value. Unfortunately, a buyer often sees that as excess stock, and therefore as a risk rather than a safe and solid stock level. Even if the buyer does not really think so, he will often play this card during the negotiations.
In this situation I would ask you this: Is this the right time for you to sell? Postponing the sale by one year prevents € 300,000 from being lost (75% of € 400,000), which in this case is around 10–15% of the deal value. And you can still collect a year’s profit of € 400,000.
What to do?
What I see in these situations is that a commercial broker has no interest in postponing the deal, but that is an option that you should at least consider. The commercial broker could lose you as a client and will probably tell you that at the moment the market is perfect for selling your business, so you should go for it! But isn’t that your call to make? You should at least be advised to consider to lower your stock levels isn’t it? It is my role to make sure you don’t overlook this option.
Does my advise appeal to you? Then contact me!