Asset purchase and how to treat inventory

Member resources:

Frequent asked questions:

What is Searchfunder.com?

Searchfunder.com is an online community of searchers, investors, lenders, brokers and other professionals. Over 80% of those involved in searchfunds maintain a Searchfunder account to help them network, hire, and mentor others.

What are the benefits of membership?

In addition to accessing the most active online network of business buyers, Searchfunder licenses research that is simply not cost effective for individuals. Access over 15,000 industry reports and 50,000 transaction financials. You also get monthly credits for contact information for your company sourcing campaign with the option to purchase more at drastically discounted rates. Searchfunder has pre-purchased access from these data providers in order to empower individual buyers and to help searchers level the playing field versus private equity.

Do you have deals?

While we are primarily a buy-side network, we do have hundreds of brokers that regularly post deals to the community.

Can I find an internship on Searchfunder?

Absolutely! We have the industry's largest intern job board. If you are considering a search, the first step is to help another business buyer so you can hit the ground running.

What does it cost?

Searchfunder is a subscription service. We offer flexible monthly, annual and lifetime memberships.

Monthly

$79 / month

Annual

$19 / month

Lifetime

$432 / once

Those who maintain an account with us for over 4 continuous years are permanently added to the community without the need for a membership.

Do I need an MBA to join?

While a large number of our members come from dedicated programs at Harvard Business School, Stanford GSB, Chicago Booth, and other top programs, searching is no longer reserved for the elite. With the current abundance of dry powder in private equity, and an increasing number of business owners reaching retirement age, good deals rarely go unfunded.

Post a question, deal, job, etc...

Make a post...

Complete registration to post.

by a professional from New York University - Leonard N. Stern School of Business
in New York, NY, USA

2yrs ago

Asset purchase and how to treat inventory

Looking at a business that has inventory which could be easily liquidated (e.g., lumber, plywood, etc.). Current owners have no revolvers or LOCs to fund inventory; they use the cash from the business. There is no other debt either. Structuring as an asset sale to do my best to separate from any historical exposures I know exist based on initial discussions with the seller. I'm valuing the business based on EBITDA and giving an extremely fair multiple; maybe even a bit on the high side. However, sellers think inventory should be added to Purchase Price. Curious to hear thoughts. Appreciate your perspectives.

0 Likes

244 Views

reply by an intermediary 2yrs ago
from The University of Chicago in Chicago, IL, USA

Run a financial model that gives you ROI you are ok with and it services debt. Use price (P) in your model that includes everything to generate the EBITDA. After that, you can offer the seller the price P (which includes everything) or a lower price (p) which will exclude certain assets/liabilities (like inventory).
A buyer should not be buying a business based solely, or primarily, on multiples; either you will overpay or loose a good opportunity.

reply by a searcher 1yr ago
from Western University in Calgary, AB, Canada

^My understanding is that if the business is debt free, then the seller can "afford" to have more money tied up in inventory, be more lenient with their payment terms for A/R, etc. - whereas when the business is acquired, there is now an explicit cost to the above.