How do you factor/value inventory in a transaction?

by a searcher

1 year ago

Looking at a small e-comm web site that keeps inventory. Seller has given an estimated value of the inventory at cost ($300k) and given an asking price for the business with inventory ($750k). What's typical? Negotiate the value of the business separately first and then deal with inventory? Try to bundle it? I assume a seller should be able to provide a full accounting for all the inventory and what they paid. What about the age of some inventory? I'm sure that some turns over faster than other items. Do you discount the old stuff? I do not have experience with inventory management so how do you know if they have too much/not enough. I assume there is software that exists to help predict and manage inventory? Thanks in advance for any guidance on inventory 101!

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searcher

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1 year ago | like reply | 0 likes

professional from Bishop's University

Inventory is part of the working capital and enterprise values are inclusive of net normal position in working capital. So, it depends on the industry and how readily financeable this inventory is. As far as the value of the inventory itself, you need to have it examined and yes, old and dated stuff should be discounted. Others in this thread have addressed this point. Here's a video that addresses this: https://youtu.be/X6L_dS2gRYs

1 year ago | like reply | 1 like

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