What happens to work in progress and stock when I sell my business?
Bildet er tatt av Gerd Altmann fra Pixabay
You have decided to sell your business, and you are looking for a business broker. If the market is doing well and your business is thriving, it is the perfect time to sell. However, you can’t help wondering what will happen to the products that your company is in the process of manufacturing and the ones you have in stock.
The definition of work in progress
Although therapists and bumper sticker manufacturers may use the term work in progress to define a developing human being, it is actually a quantifiable expression used to help determine the value of a business.
Many businesses nowadays simply offer services such as secretarial, life coaching, and accounting. You will only have to worry about a Work in Progress if you make a tangible product. Work in Progress is used to describe the worth of inventory, labor, and the overhead of inventory currently being made. This inventory is yet to be completed and receipted into stock.
Stock refers to items that have actually completed production and are ready for sale.
Including inventory on your balance sheet
When you sell your business, you will need to make a statement of financial position or a“balance sheet.” This is a brief description of the financial balances of a business. A company normally makes its balance sheet at the end of its fiscal year. The balance sheet is considered to be a snapshot of a company’s financial well-being.
The balance sheet is one of the four basic financial statements a business will use. It is the only statement that documents a company’s assets on an exact date.
The balance sheet is divided into two sides on a sheet of paper. You may have heard that this is a list of assets and liabilities, but it is actually a bit more complicated than that. One side will list the company’s assets, but the other side will list liabilities and ownership equity. Ownership equity refers to the value of the company sale with any liabilities owed by the company not transferred with the sale subtracted.
How WIP fits in
WIP may be an asset or a liability. Generally, it will be considered an asset because the company will need works-in-progress to turn into items for sale. There may be some cases in which a company is no longer manufacturing a certain product but still has some of the raw materials for that product. The company may also owe money for raw materials for a work in progress.
The dollar value of a work-in-progress will be determined by the cost of the raw materials and the stage of production the materials are in when the balance sheet is created.
A company must detail the value of both finished products and basic materials on its balance sheet. The value is calculated by estimation. When attempting to sell a business, unscrupulous people will often try to make the raw materials sound more valuable than they actually are by inflating their cost.
The more steps there are to a production of a product, the more complicated it is to figure out WIP costs.
What will happen to the stock
The existing inventory that is in stock will probably be priced into the value of the company. The only exception is if a separate agreement exists, allowing you to take that inventory with you.
Determining what happens to work in progress and stock is very complex. It is better to have the assistance of a professional business broker assist you in your sale.
According to Florida business broker Neumann, the more attention you pay to detail. The easier the sale of your business will be. If you sell your company at the right time and list your assets and liabilities properly, it can be very profitable, and the process can go smoothly.
