Megaventory Blog - Online Inventory Management Software, Order fulfillment and Control System
This is the company blog for megaventory, an online software that helps small businesses that buy, sell and manufacture physical products to manage sales, purchasing, manufacturing and inventory. We blog about new features and updates but also about enterprise software, small businesses, cloud computing and the industry in general.

Thursday, July 11, 2019

How to Value Inventory When Selling A Business

This is a guest post by contributor Marla DiCarlo outlining how inventory and its value should be approached in any company which handles stock and its business depends on keeping detailed information about the inventory costs. 

Inventory has the potential to become quite the contentious issue when selling a business. If the seller and buyer do not agree on the inventory count or value, it will prove difficult to reach an agreement on the business' sale price. Though it will be challenging to accurately value the entirety of your company's inventory, it can be done. Let's take a quick look at how to value inventory when selling a business.

Tabulate the Inventory Cost

The first step to accurately gauge the value of your inventory is to determine the price of your inventory based on what you paid for those items or spent to manufacture them. If you paid varying costs for different items in your inventory, you need to know all this information in detail. It does not matter if the items were bought in bulk, purchased individually or made at varying cost at your manufacturing facility; you must determine the true cost of the entirety of the inventory based on what it cost to acquire or make those items. The individual or entity bidding on your business deserves to know exactly what it costs to acquire your inventory down to the penny.

Calculate the Inventory Sale Price at Current Rates

Break out the calculator and add up the true cost of your inventory based on the sale of each item at its current price. As an example, a company that sells widgets for $25 a piece would have an inventory value of $2,500 if it had 100 units stocked in inventory.  The sale price of your inventory will prove critically important to those interested in placing a bid. Such a sale price can be determined at today's rates or - if that's impractical to find out - in the rates you typically sell at.

Account for Goods That Cannot be Sold

The value of unusable goods, damaged goods and goods that cannot be sold for another reason must be subtracted from your inventory's retail value. As an example, consider a frozen fish supplier that has a power outage along with a generator failure that causes 100 servings of fish to spoil. If the retail value of each fish serving is $20, a total of $2,000 must be subtracted from the inventory' value. However, the cost of inventory remains unchanged. Unusable goods affect the inventory's retail value as opposed to what it cost to acquire or make the inventory. This is also information which needs to be maintained at any time and be easily retrievable

Perform Ongoing Adjustments of Inventory Values

Inventory value is dynamic rather than static. The true value of your inventory hinges on current market rates. This means business sale negotiations that take place weeks or months prior to the current date will be based on the inventory's price at the point of those initial talks. Continue to adjust your inventory value as time progresses to ensure they reflect the items' true value at the current moment in time. Otherwise, there will likely be a disagreement as to what the actual inventory value really is when negotiations advance. Furthermore, inventory value must be adjusted as new items are added and old items are sold.

Strive for a Mutually Beneficial Inventory Value

The inventory value must prove acceptable to the business buyer as well as the seller. In some cases, it makes sense to sell inventory separately from the company. The bottom line is there is no 100% foolproof means of tabulating the true value of inventory as there are multiple methods to calculate value. Discuss inventory valuation with the party interested in acquiring your business, reach an agreement on a mutually beneficial inventory value and both sides will feel as though they are getting a fair shake.

Marla DiCarlo is an accomplished business consultant with more than 28 years of professional accounting experience. As co-owner and CEO of Raincatcher, she helps business owners learn how to sell a business so they can get paid the maximum value for their company.

Do you need to know your inventory levels and associated costs in detail?
Track everything inventory related with Megaventory
Sign up now for a free trial

We love conversation so if you'd like to share your own feedback on how you manage your stock, write a comment below or tweet us!

And if you liked this post, don't forget to share it with your colleagues and friends!

Tuesday, June 25, 2019

Choosing suppliers based on product lead times and availability

If you run your own retail or wholesale company, you need to ensure a supply chain that works as efficiently as possible. Selecting the right vendor(s) to work with is an essential procedure. While you manage your sales and orders, a wrong choice of supplier may end up being devastating. As such, to arrange your orders it is essential to know with who you will cooperate with. Shortlist all the possible vendors that can provide the products you want and figure out who is better for your needs.

As a first step, you should choose partners which are on the same page as you and are compliant with their commitments. Make sure your choices of partners are straightforward and clear. You are not looking only for extra help, but also for someone who is an expert you can rely on. It is important for your cooperation to know what they can provide to you and what are their requirements. So speak with many vendors and go into agreement with only the ones that check the most boxes which matter to you!

List the particulars of each agreement with your suppliers

Once you have created a list of your vendors, then attach all the agreement features that they offer. You can have a look and give priority to the ones you consider more valuable for the products you need. A helpful piece of advice is to gather all the accurate information from every vendor in a single point. You can use this later as a reference when choosing where to order from (without having to dig up contracts, agreements, etc)

Know the product details, the stock levels and the lead times of your suppliers

You should also be able to know for each product the information you need and which is relevant to the supplier. For example, in Megaventory we have a table such as the following. 

That way you can know at any time the exact price at which the supplier offers the product to you and its product code and description (often supplier details are different than how your business presents them to its clients). It is crucial also to know about the stock level of each supplier and the lead (delivery) times of every product.

Ensure you can handle variable quantities and lead time ranges

Problems are often presented during communication with the vendor. One of the most significant is when there is a misunderstanding about the lead time of the product - ie how long it will take for an order to get to you. Be sure that you have agreed for the precise date you expect to receive a product so you are able to organize fulfilling your orders precisely and on time. It is key you have time ranges which are pre-defined and not too wide. Using Megaventory, you can define and see the individual delivery times and the quantities of every supplier, as shown below.

You are able at any point prior to making your order to have a look at every vendor on your list. It is useful to check the period of time they deliver and the quantity ranges of their products. That way you can make the optimal purchase prioritizing either against price, delivery time or other vendor preferences.

Organize your orders

After you have determined from which vendor a specific purchase order will be served, and consequently know the expected date and the quantity ranges of every product, it is time to fill in your purchase order. At this point, the supplier from whom you will receive the product and the quantity being ordered should be all you need.

In case of managing multiple locations, it is also important at this point to wisely pick the inventory location where you will be able to receive the products ordered. 

After you set up such a purchase order with one of your vendors you should be able to know when each item in the order arrives. You should also be aware of the earliest and latest delivery times of the order, taking into account all the individual products in the order and their respective lead times. Megaventory will easily do the calculation for you but you can also override Expected Dates to enter your own values.

This process will happen more than a few times and from various vendors before you can consider the stock as having been replenished adequately. In fact, in most industries, this is an ongoing process. As such, it is helpful to gather all your orders on one or more single list. It can be a great advantage to know any time you want every detail of all the purchases you have made. Here’s how Megaventory users complete and organize all their orders.

A stock procurement system for your company and your suppliers

The key before you start the selection process of the right vendor is to choose the right system to integrate into your company. In this case, you are looking for a system such as Megaventory to help you organize all your products and collect all the information about the selected suppliers. You can see anytime the stock of your supplier, the purchase price they offer for every product and the expected date you will receive your product.

The implementation of a system like this can help you prioritize and select efficiently the supplier with the best price and lead time. It can provide you all these features you are looking for, it can help you avoid mistakes and move fast and eventually it can help you grow your business much faster.

Do you import stock wholesale in order to sell to retailers? Do you purchase goods to deliver to your customers? Do you rely heavily on your suppliers continuous good performance?

Are you ready to take your supplier inventory management to the next level?
Manage your vendors with Megaventory
Sign up now for a free trial

We love conversation so if you'd like to share your own feedback on managing suppliers, write a comment below or tweet us!

And if you liked this post, don't forget to share it with your colleagues and friends!