RETAILERS – Sales & Margins DON’T Tell the Whole Story

Some years ago I was asked to value the inventory of a store that was to be sold. The business owner was in his seventies and had owned the store for 40 years in regional Victoria. The potential buyer had worked in corporate life and was looking for a business opportunity. The business was for sale at $100,000, $90,000 stock and $10,000 goodwill. The potential buyer wanted an independant valuation of the stock.

The business owner saw the sale of his business as his superannuation and was very inflexible about the stock valuation, he had receipts for all stock and fully expected to 100% of the value for each pair of shoes. With the sales for the last financial year of $200,000 it was not rocket science to see that much of his stock would be over valued which proved to be correct with a valuation of $32,000 for all stock.

The deal fell over and the prospective buyer was aghast at how close he was to buying a ‘lemon’ that could have sent him broke in the first twelve months!

Rob Golding, 2009