Maximum Percentage Stock Value Adjustment

Congratulations, you’ve found a buyer that has the financial means and relevant qualifications to purchase your business, and the wheels have been set in motion.

To protect yourself and your business while due diligence is carried out, a Sale and Purchase of a Business Agreement will be prepared.  As part of the purchase price, you’ll be asked to put down an estimated value for stock and the value needs to be as accurate as possible. 

Your agreement will have a Maximum Percentage Stock Value Adjustment. This is a financial buffer, mainly in the interest of the Purchaser, in the event that the estimated stock value is higher than expected. Both the Vendors and the Purchasers Lawyers will hold in their trust account, a sum equivalent to the total maximum percentage of the estimated stock until such time as the actual value of the stock has been determined between both parties.

Any stock over the agreed percentage is called ‘excess’, and the Purchaser can decide what to do with it.  On the day of settlement, a joint stocktake will be conducted by the Vendor and the Purchaser to determine an accurate stock value.

For example; you estimate you have $100,000 worth of stock and your agreed Maximum Percentage Stock Value Adjustment is 10%. At the final stocktake, it turns out you have $115,000 work of stock. $10,000 will be covered by the Maximum Percentage Stock Value Adjustment, however, there is an additional $5000 in excess stock.  

The Purchaser may then;

a) choose if they want to accept all or a portion of the excess; and
b) may choose which items the vendor shall retain in order to reduce the actual value to the estimated value (plus the relevant maximum increase). 

The purchaser only has 5 working days to notify the vendor of their choice to have the vendor retain some stock, or it is deemed the purchaser accepts all the stock in trade. 

A successful sale or purchase of a business is essential to a company’s success. No matter where you are in your business journey, Sutcliffe Matson has the experience and knowledge to help you make the most of your sale or purchase. Contact our team to discuss your investment today 09 279 8351.

If you have found a business of interest and would like to know more about due diligence and what you need to know, read our blog.