Lessons from the field
Don't Let Inventory Be a Deal Killer: How Business Brokers Handle Inventory in a Business Sale
Ian MacDonald's first deal as a London business broker nearly died over a single misunderstanding: £800,000 of frozen food. Here's how he saved it, whether inventory is included in the price of a business, how it's valued and counted, and what brokers should put in writing so it never surprises anyone at closing.
Quick answer
Inventory is one of the most common surprises in a business sale, because buyers and sellers often assume different things about whether it's included in the price. It can be included in the asking price, sold “plus inventory” (in the UK and Australia, “plus SAV,” stock at valuation) or included up to a set amount with an adjustment at closing. Inventory is usually valued at the seller's cost, not retail, and expired, damaged or obsolete stock is left out. To keep inventory from killing a deal, brokers should ask about it on the first call, state in the listing and the offer exactly how it's handled, have a neutral inventory firm count it just before closing, and agree in advance on what happens if the count comes in higher or lower. A free, printable inventory checklist for business sales is available to download from this article.
A £950,000 surprise
Ian MacDonald, a business broker in London, likes to tell the story of his first deal, because it nearly fell apart over something simple.
“I was selling a frozen food warehouse business located in South London. It was mildly profitable but my buyer wanted it because he needed space and workers who knew what they were doing. He would take over the seller's clients, of course, but he was less interested in that than in the warehouse itself.”
The buyer and seller agreed on a price of £150,000. Then the seller's attorney sent over the contract. The price on it was £950,000.
“My buyer was furious. He's yelling, ‘We had a deal! What's with this bloke? What's he trying to pull?’ and all that.”
Ian called the seller, who explained the difference. The extra £800,000 was the inventory.
“Mate, that's my inventory. You want him to take me for a ride on £800,000 pounds worth of frozen goodies? Not happening.”
The buyer had never factored the stock into his thinking. To him, the business was a building and a team. To the seller, it was also a warehouse full of product he'd paid for.
How Ian saved the deal
Ian came up with two solutions.
“I told them, my commission is based on the business sale alone, not the inventory. So that saved them money. Then I suggested a professional inventory firm to count it all up. I worked for an inventory firm one summer in uni (college) and it was a very good solution they agreed on.”
The deal closed. And Ian learned a lesson he's applied ever since: he now asks sellers about inventory at the very start.
“Listen, it might be a rarity, but when you're a broker, every deal is a big deal. I won't let one die because of it.”
Using a middle man to avoid animosity
Inventory doesn't kill many deals, but when it causes trouble, it's usually on a big one.
“I can recall only a few times this was an issue in a sale. But to tell you the truth, each one was a pretty substantial deal. It was either wholesaler or distributor or a really large restaurant. Food places can have thousands of dollars' worth of high end foods sitting in freezers.”
I remember one large restaurant being sold to a restaurant group in Los Angeles. “They had to come up with around $35,000 more at closing. They weren't happy, but it didn't kill the deal.”
I think Ian handled it really well.
“Not charging commission is a natural. That makes sure people save money, both buyer and seller. But also, having a middle man do the counting is worth every penny. Those companies make sure the rotten or expired stuff is not counted and there is no animosity between buyer and seller.”
Is inventory included in the price of a business?
It depends on the deal, which is exactly why it causes so many surprises. There are three common ways inventory is handled in a business sale, and the listing, the offer and the purchase agreement should all say which one applies.
| Structure | How it works | Best for |
|---|---|---|
| Included in the price | The asking price covers a normal level of inventory. No separate payment. | Businesses with small, steady inventory, such as many service businesses and small restaurants |
| Plus inventory (UK and Australia: “plus SAV”) | The buyer pays the business price, plus the value of the stock counted at or near closing. | Retail, wholesale, distribution and other inventory-heavy businesses |
| Included up to a set amount | The price includes inventory up to an agreed figure. The price is adjusted at closing if the count is higher or lower. | Businesses whose stock levels change with the season |
In the UK and Australia, you'll often see listings marked “+SAV,” meaning plus stock at value: the buyer pays for the stock on top of the business price, usually based on a stocktake near settlement. The opposite is “WIWO,” walk in, walk out, where the business changes hands as is, with no count. Ian's seller was thinking “plus SAV.” His buyer was thinking “walk in, walk out.”
How is inventory valued in a business sale?
- At cost, not retail. Inventory is usually valued at what the seller paid for it, not what customers would pay. Valuing it at retail would make the buyer pay for profit the seller hasn't earned yet.
- Only sellable stock counts. Expired, damaged, obsolete and slow-moving items are usually left out, or counted at a discount.
- Work in progress and supplies are agreed separately. Decide in advance whether packaging, cleaning supplies, spare parts and half-finished goods are included.
- Count it close to closing. Inventory changes every day the business operates, so the final count should be done as close to closing as possible, often the day before or the morning of.
Three moments when inventory goes wrong, and how to prevent it
- At listing. Ask the seller how much inventory the business normally carries, what it's worth at cost and how it's tracked. Then state clearly in the listing whether the price includes it.
- At the offer. The letter of intent should say how inventory is handled, how it will be valued, who will count it and when. Ian's deal broke down because the price was agreed before anyone mentioned the stock.
- At closing. Have a neutral inventory firm count the stock, using the method agreed in writing, and adjust the price as the agreement says.
Most broken deals break in due diligence. In Axial's Dead Deal Report on deals that died after a letter of intent in 2025, diligence findings were the most common cause (25.3%), followed by quality of earnings gaps (21.3%) and renegotiation challenges (14.7%). An inventory surprise is exactly the kind of late discovery that turns into a renegotiation. Raising it early takes it off the table.
Free download: Inventory Checklist for Business Sales (printable PDF)
Everything you need to keep inventory from killing a deal, on one page: questions to ask the seller at listing, what to put in the letter of intent, a count-day checklist, how to handle the closing adjustment and the terms brokers use, including plus SAV and WIWO. Download the free inventory checklist (PDF).
How the physical inventory count works
- Agree on the method in writing. Valuation at cost, what's excluded and how disputes are resolved.
- Choose a neutral inventory firm. A third party removes the suspicion that either side is inflating or discounting the count. Agree in advance who pays, often split between buyer and seller.
- Count as close to closing as possible, with the buyer and seller, or their representatives, present or available.
- Exclude expired, damaged and obsolete stock, as agreed.
- Adjust the price. Apply the count to the agreed structure, and record the final inventory figure in the closing documents.
Inventory caps, floors and closing adjustments
When inventory is included up to a set amount, the agreement should spell out what happens if the count comes in different:
- A floor: if inventory falls below an agreed minimum, the price goes down, so the seller can't run the stock down before closing.
- A cap: if inventory exceeds an agreed maximum, the buyer either pays for the excess, as the Los Angeles restaurant group did, or isn't required to buy it.
- A tolerance band: small differences, within an agreed amount either way, don't change the price at all, which avoids arguing over a few boxes.
Buyers should also make sure they can pay for it. An SBA 7(a) loan can be used to purchase inventory as well as to buy a business, but the amount needs to be planned into the loan before closing, not discovered at it.
Should a broker charge commission on inventory?
Ian didn't. His commission was based on the business sale alone, which saved both sides money and helped get the deal done. Practices vary, and the listing agreement decides. Some brokers charge on the total price including inventory, some charge only on the business, and some charge a lower rate on inventory. What matters is that the seller knows which from the start, so it never becomes a surprise of its own.
Inventory and the purchase price allocation
In an asset sale in the U.S., the buyer and seller generally each file IRS Form 8594, which allocates the purchase price across classes of assets. Inventory is a Class IV asset: “stock in trade of the taxpayer or other property of a kind that would properly be included in the inventory of the taxpayer if on hand at the close of the tax year,” and “property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business.” How much of the price goes to inventory affects both sides' taxes, so the allocation should be agreed with their accountants, not left to the last minute. (This is general information, not tax advice.)
Questions to ask the seller about inventory on the first call
- How much inventory does the business normally carry, at cost?
- Does it change with the season? What's the highest and lowest level in a year?
- How is inventory tracked: a point-of-sale system, accounting software or a spreadsheet?
- Is any of it expired, damaged, obsolete or slow-moving?
- Is any of it on consignment, or owned by a supplier?
- Is any inventory pledged as collateral for a loan?
- Do you expect to be paid for inventory on top of the business price?
How a CRM helps you catch inventory issues early
- Inventory details on the listing record, so the amount, valuation method and structure are recorded from day one, and nobody has to remember them.
- Seller document uploads, so inventory reports, stock lists and supplier invoices go straight into the listing record. (Direct seller uploads.)
- Pipelines that show every deal's stage, so you can see which deals still need inventory terms confirmed or a count scheduled. (Pipeline tools.)
- Tasks and reminders, so the count, the closing adjustment and the accountant's allocation all happen on time. (15 automations that save brokers time.)
What's changed since 2020
- Supply chain disruptions made inventory harder to value. Since 2020, shortages and price swings have made many sellers' inventory worth more, or less, than they expected, which makes agreeing on the valuation method in advance even more important.
- Better inventory data. More small businesses track inventory in point-of-sale and accounting systems, so brokers can ask for an inventory report at listing instead of relying on an owner's estimate.
- AI tools are making listings more complete. AI can help draft listing descriptions and CIMs that state clearly how inventory is handled, so buyers know from the first read. (More in our guide to AI for business brokers.)
Keep every deal on track with Vertica CRM
See how Vertica CRM records inventory terms on every listing, collects seller documents and keeps every step to closing on schedule. Contact us for a short demonstration.
Schedule a Demo Questions? Call +1 212 381 4994 (USA) or +61 3 8518 4759 (Australia).Frequently asked questions
Is inventory included in the price of a business?
It depends on the deal. Inventory can be included in the asking price, sold on top of it (plus inventory, or plus SAV in the UK and Australia), or included up to a set amount with an adjustment at closing. The listing, the offer and the purchase agreement should all say which.
How is inventory valued when selling a business?
Usually at the seller's cost, not retail. Expired, damaged, obsolete and slow-moving stock is left out or discounted, and the final value is based on a physical count as close to closing as possible.
What does plus SAV mean in a business sale?
SAV stands for stock at value. A business listed “plus SAV” means the buyer pays the business price plus the value of the stock, usually based on a stocktake near settlement. It's common in the UK and Australia.
What does WIWO mean when buying a business?
WIWO means walk in, walk out. The business changes hands as is on settlement day, with no separate inventory count or payment.
Who counts the inventory when a business is sold?
Often a neutral, professional inventory firm, agreed by both sides and paid for as the agreement says. A third party keeps either side from inflating or discounting the count and excludes spoiled or expired stock.
When should inventory be counted in a business sale?
As close to closing as possible, often the day before or the morning of, because inventory changes every day the business operates.
What happens if the inventory count is higher or lower than expected?
The purchase agreement should say. Common approaches include a floor that lowers the price if inventory falls below a minimum, a cap above which the buyer pays extra or isn't required to buy, and a tolerance band for small differences.
Do business brokers charge commission on inventory?
It depends on the listing agreement. Some brokers charge commission on the total price including inventory, some only on the business itself, and some at a lower rate on inventory. The seller should know which from the start.
Can an SBA loan be used to buy inventory?
Yes. SBA 7(a) loan proceeds can be used to purchase inventory as well as to buy a business, but the amount should be planned into the loan before closing.
How is inventory treated on IRS Form 8594?
Inventory is a Class IV asset on Form 8594, which the buyer and seller generally each file to allocate the purchase price in an asset sale. The allocation affects both sides' taxes, so it should be agreed with their accountants.
What questions should a broker ask a seller about inventory?
How much inventory the business normally carries at cost, how it changes with the season, how it's tracked, whether any is expired or obsolete, whether any is on consignment or pledged as collateral, and whether the seller expects to be paid for it on top of the business price.
Is there a checklist for handling inventory in a business sale?
Yes. Vertica CRM offers a free one-page Inventory Checklist for Business Sales (PDF) with listing questions, letter of intent terms, a count-day checklist, closing adjustments and key terms such as plus SAV and WIWO.