Key Takeaways
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A price quoted plus SAV generally means the buyer pays for stock on top of the price, at cost, after a stocktake close to settlement.
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Plant and equipment should be listed in a schedule that shows what is owned outright, what is under finance or lease, and what is excluded.
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A Personal Property Securities Register search shows whether anyone holds a registered security interest over equipment.
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The contract apportions the price between goodwill, plant and equipment and stock, and the split can affect tax for both parties.
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Agree how damaged, obsolete and excess stock will be treated before the count, not during it.
Many business sales in Queensland transfer three kinds of asset: the goodwill, the plant and equipment used to run the business, and the stock on hand. Each is treated differently in the listing, the contract and the settlement figures.
Listings may quote a price that includes stock or a price plus stock, so buyers comparing current business listings need to know which basis applies. Sellers need the same clarity before going to market, along with a clear record of what equipment is owned, financed or excluded.
Settling these details before listing is part of the work a broker for selling a business does with the owner, so the asset list, finance payouts and stock basis are clear from the first enquiry.
How Stock Is Priced in a Listing
Listings generally quote either a price that includes stock or a price plus stock at value (SAV), sometimes written as stock at valuation. Gold Coast brokers use both. Under SAV, the buyer pays for the stock on hand as a separate amount on top of the agreed price.
When stock is included, the contract should still state the expected stock level. A seller who runs stock down before settlement hands over less than the buyer priced.
The SAV approach can suit businesses where stock levels move with the season or the week's trade, such as retail, wholesale, bottle shops and hospitality venues. It also lets buyers compare the core business price across listings.
Walk-in walk-out (WIWO) usually signals that the business is sold as it stands, with stock, plant and equipment included. Do not assume what the phrase covers, as it has no fixed meaning and the contract wording governs what transfers.
How the Stocktake Works
A stocktake under SAV turns on three agreed points, each of which should be settled in the contract:
Count Timing
The stocktake is commonly carried out on the day of settlement or the evening before, after trading closes. Both parties, or their representatives, attend so the count can be agreed on the spot.
Larger inventories are often counted by an independent stocktaker. The contract should name who counts, who pays and how disagreements are resolved.
Valuation Basis
Stock is generally valued at the seller's landed cost, meaning the purchase price plus freight and other charges to get the goods into the business. The contract sets the basis, and retail price is generally not used.
Some contracts set a maximum amount the buyer must pay for stock. If the count comes in above that figure, the seller may keep the excess or the parties may negotiate. A cap can protect a buyer who has arranged finance around an expected stock figure.
Unsaleable Stock
Before the count, agree how these categories will be treated:
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Expired, damaged or unsaleable items, which are usually excluded.
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Discontinued lines and out-of-season or slow-moving stock, which may be discounted or excluded.
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Opened packaging and part-used consumables, which are often counted at a reduced rate or left out.
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Quantities well above normal trading levels, which may be capped or returned to the supplier where possible.
Sellers can reduce disputes by clearing dead stock before listing and keeping purchase records that show the cost of every line.
Plant and Equipment Schedules
Plant and equipment covers the physical items used to run the business, including kitchen equipment, fit-out, vehicles, tools, machinery, computers and signage. A schedule attached to the contract lists each item that transfers and shows its status:
Ownership Status
Equipment owned outright passes to the buyer at settlement. Equipment under a chattel mortgage, hire purchase or finance lease generally needs to be paid out by the seller, or assigned to the buyer with the financier's consent.
Rented items do not belong to the seller and should be listed separately with the supplier's details. Examples include coffee machines supplied under a roaster agreement, point-of-sale terminals and linen.
A search of the Personal Property Securities Register (PPSR) shows whether anyone holds a registered security interest over an item. Buyers generally run the search during due diligence. Sellers can run it earlier to find old registrations that need clearing.
Excluded Items
Sellers often keep personal items, artwork, a vehicle or equipment that belongs to a related business. Write those exclusions into the schedule so the buyer is not surprised on handover day.
A completed schedule can also inform an appraisal of the business. The value of the plant and equipment, and how much of it is encumbered, may affect what a buyer will pay.
How the Price Is Divided
The contract splits the purchase price between goodwill, plant and equipment and, where it is included, stock. Buyers and sellers often have opposite preferences on the split.
A buyer may prefer a higher figure against plant and equipment, which may be depreciable. A seller may prefer a higher goodwill figure for capital gains purposes. The split can also affect goods and services tax (GST) treatment and transfer duty, so both parties should have their accountant review it before signing.
The split should bear a reasonable relationship to the actual value of the items. A plant and equipment figure far above the written-down value in the seller's books may create a balancing adjustment for the seller. It can also raise questions with the buyer's lender and the Australian Taxation Office. Price, deposit and stock terms are among the sale contract checks to review with a solicitor.
Equipment Condition at Handover
Business sale contracts commonly require the seller to hand over plant and equipment in the same condition as at the contract date, fair wear and tear excepted. Equipment is also generally required to be in working order where that was represented.
Buyers can protect themselves by inspecting the equipment with someone who knows the trade, recording serial numbers and asking for service records. A pre-settlement inspection can confirm nothing has been swapped, removed or damaged since signing.
Sellers can protect themselves by fixing or disclosing known faults before listing. A disclosed fault is a negotiation point, while an undisclosed fault discovered after settlement can become a claim. Where equipment is near the end of its useful life, say so.
Preparing the Assets Before Listing
Sellers who sort the asset position early go to market with fewer loose ends:
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Build the plant and equipment schedule with purchase dates, ownership status and written-down values from the depreciation schedule.
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Run a PPSR search in the business name and the owner's name, and clear registrations that no longer apply.
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Gather finance and rental agreements for any item that is not owned outright.
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Clear expired, damaged and slow-moving stock, and tidy the purchase records.
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Decide whether to list the business with stock included or plus SAV, and agree that with the broker.
Buyers can use the same list in reverse. Ask for the schedule, the finance agreements and a recent stock figure before due diligence starts, and have a solicitor confirm how the contract deals with each item.
A clear asset position can reduce questions during due diligence and support the buyer's finance application.
Itemise the Assets
Start with a written schedule of every item, marked as owned, financed, leased or excluded, and a current stock figure at cost. Then ask your accountant to check the written-down values before the price split is discussed.
Bond Business Brokers can review your stock and equipment schedule before the business is listed.
Common Questions
Is GST charged on stock at settlement?
It generally depends on whether the overall sale qualifies as a GST-free supply of a going concern, which has its own conditions. Confirm the treatment of stock and the rest of the price with your accountant before settlement.
Do vehicles transfer with the business?
Vehicles included in a sale need their registration transferred through the Department of Transport and Main Roads, with any finance over them cleared or transferred. Where transfer duty was paid on a vehicle as part of the business contract, the Queensland Revenue Office may reduce the vehicle registration duty by that amount.
What happens if the stock count is disputed?
The contract's dispute process applies, which may involve an independent stocktaker or holding the disputed amount until it is resolved. Agree that process in the special conditions with your solicitor before settlement.
This article provides general information only. Obtain advice from appropriately qualified advisers about your circumstances before entering into a transaction or relying on tax, legal or regulatory information.