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Stock at valuation

Stock At Valuation (SAV)

When buying or selling a newsagency, an independent newsagency specialist stock-taker should be engaged to assess the wholesale value ex-gst of the stock on hand just prior to settlement.

The cost of the industry specialist stock-takers is shared by the buyer & seller equally, so that the stock-taker works impartially for both parties. The specialist stock-taker will identify and exclude any soiled, damaged, faded, out of date or deemed unsalable stock from the stocktake.

Newsagency Buyers

Other than what the stock-taker may exclude, you can not choose which stock to buy or leave, you have to buy the stock “as is”.  If a certain product or range is not to your preference, you can discount it and sell it off after ownership, after all, you only paid wholesale for it.

One of the greatest mistakes in retailing, is stocking “personal” preferences in stock-for-sale. Your customers want what THEY want, not necessarily what you like, and some of the best sales can come from product you may never personally use; so why limit your sales potential ?

If the vendor can prove sales and demand records for any products held, that stock will be included in the stock-take.

Newsagency Sellers

In preparation for your sale :-

  • Sell-off or remove “unsaleable” soiled, damaged, faded, slow moving, out of date or excessive stock early.
  • Do closing stock levels on the financial statement reflect the actual current levels ?
  • Is your Stock Turn multiple healthy  ?   (discuss with your newsagency broker)
  • Are your Opening & Closing Stock provable from stocktakes ?

If you haven’t done a stocktake recently, your opening & closing stock should be the same value. Due Diligence may discount any difference between an Opening Stock figure and a higher Closing Stock figure if not substantiated by documented opening & closing stocktakes. It requires 2 stocktakes to substantiate.

Stock is not Negotiable

At times, buyers on a budget may want stock run down to meet their budget. Newsagencies For Sale will never recommend this practice. Here’s why.

A newsagency contract is an average 10-12 weeks, which is often plenty of time to sell down stock and not re-order, to meet a “budget”.  BUT, the result can be devastating.

The most common result is, fast moving, high demand lines sell out first. If they are not re-ordered, firstly the vendor will miss out on sales, second, the customer may see an item out-of-stock for weeks, and go elsewhere.  The buyer then takes over the shop, but has next to no idea what high volume stock is missing and in need of re-ordering, nether-lone know how to get that lost customer back.

Or worse for the vendor, if the contract fails for any reason, they then have to explain to the next person why their sales are down, and the vendor will have made less profit in the mean time, making them less appealing to the next potential buyer !

Stock is fluid

If you don’t have it, you can’t sell it !

Stock advised by a vendor, is only ever an estimate, and usually derived from their end of year (June) stocktake at their lowest annual stock level.

If however as example, a buyer is taking over in November, stock on hand could be well in excess of the June figure.

By end of November, quality retail newsagencies will be holding seasonal stock for peak trade, including but not limited to :-

  • Christmas cards & boxed cards
  • Bulk Christmas roll wrap and packaging
  • Loads of gift lines
  • Calendars
  • Diaries
  • Back to School lines started end of October & more stock ready for January
  • Valentines lines ready for February (as those suppliers are mostly closed over Xmas to mid January)

If you hold back on stock, you are simply missing out on sales, and profit.

Stock as part of a Going Concern

In regards to stock within a business for sale contract, Business Contracts are generally exempt from GST, citing a clause that the business is being bought as a “going concern”. Whilst arguable, taking anything away from the make up of the business, could be interpreted by the Tax Office as no longer a complete going concern, requiring GST to be paid on the contract value.

Stock Benchmarks

Not all vendors perform annual stocktakes, so their estimated stock is at best, just a guess.

From experience, below are some reasonable benchmarks to refer to :-

  • A minimal newsagency’s stock should sit around $500 per square metre of retail floor space.
  • A healthy newsagency’s stock is more like $600-700 per square metre.
  • Seasonal peak stock levels are closer to $800-900 per square metre for a good retailing newsagency.
  • $1000 a metre is only likely where the agents sells and holds bulk cigarettes, in which case, stock could be a fair bit over this benchmark due to escalating tobacco wholesale prices.
  • Regional newsagencies are also more likely to hold higher stock levels, as they are commonly a “one stop shop” for their community, with less frequent stock deliveries available.

These rule-of-thumb benchmarks are just a guideline to help budget realistic expectations.