SAV stock at valuation meaning for business in Australia.

Whether you’re a business owner in Australia or aspiring to be one, you’re likely to come across the term Stock At Valuation or SAV at some stage.

An important aspect to look at when buying or selling in the business world, taking the time to understand SAV and how this plays into these transactions is vital.

A review of a SAV report alongside professional financial guidance is highly recommended for anyone seeking to buy a business in particular. In this guide, we’ll take a deeper look at what SAV means, its importance and what to look out for.

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What does SAV mean in the business buying world?

Stock At Valuation refers to any stock held by a business that has not been included in the asking price when selling.

The stock is instead valued at cost price, plus any freight charges, just before the sale and then added to the final sale price. This is why asking prices for businesses are often advertised as a dollar value + SAV. ¹

What is stock in a business in Australia

In Australia, stock is classed into four main categories²:

1. Raw materials. These ingredients or components are used in the manufacturing of products.
2. Work in progress. This stock is any items that are part-way manufactured or partly finished at the time of stocktake or valuation.
3. Finished goods. This covers any items that are ready for sale or distribution.
4. Consumables. This refers to any stock held by a business that is used in the day-to-day running of a business.

In the context of SAV, stock simply means any unsold stock or inventory held by the business at the time of sale.

Keep in mind that for SAV only items that can be sold to customers will be included as stock. This may look different depending on the business in question.³

For instance, a mechanic using spare parts for repairs or maintenance cannot count these items as stock, however, an auto shop selling these parts directly to consumers can.

Any stock that cannot be sold to the consumer directly should be counted in your overall business valuation.

Why is SAV important when valuing a business?

Stock regularly fluctuates in both volume and value. A party supply business, for example, may have more stock at Christmas or Easter and reduced stock at other times.

SAV ensures a buyer only pays at the time of sale for the available, saleable stock at a fair price.

It may also help to eliminate disputes over the true value of the stock in question as well as keep buyers from paying for unusable or dead stock.³

How important is timing in stock at valuation

Timing plays a key role in determining the accurate value of a business's stock.

Carrying out a SAV report too early could see a buyer agreeing to pay for stock that is then sold by the business in advance of the sale.

Additionally, depending on the items in question, market or re-sale values may also shift.

This could see a buyer paying too much or a seller receiving too little - this is why SAV is completed as close to the final sale as possible.

SAV as a combined +SAV or separate valuation

If you are offered a combined price for a business, this will be inclusive of all stock at an agreed upfront value. There are no subsequent valuations before the finalisation of the sale – this is also known as a Walk In Walk Out price (WIWO).

When advertised as +SAV you enter into the sale agreement on the understanding that the stock price will be determined at a later date.

The latter is recommended as this ensures you do not end up with unsalable stock and that the business has remained properly stocked for a smooth takeover.⁴

Who typically handles Stock at Valuation

In Australia, there are specialist valuation experts who manage Stock at Valuation. Many of these experts focus on a single industry which allows for a more accurate valuation.⁵

This valuer will perform a detailed stocktake to review the stock and determine its value before preparing a SAV report for the buyer and seller.

Few things to keep in mind about SAV

As evidenced in this guide, SAV is essential to protecting the business interests of both buyers and sellers. As a buyer, there are some added watchpoints including:

• Carefully review the expiry dates of any perishable stock
• Checking the purchase dates for inventory where possible to avoid buying old stock that the seller has struggled to shift
• Engaging an independent valuer/stocktaker that is unbiased towards both parties
• Accounting for the value of potential warranty claims on applicable goods which become your responsibility post-purchase

Again, we recommend seeking professional, qualified guidance before deciding on buying a business.

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Sources:

1. Business Buyers Advocacy Australia
2. Business QLD – Types Of Stock
3. Legal Vision – Sale Of Stock
4. Benchmark Business Brokers
5. Business.gov.au – Valuing a business

Sources checked on: 03 November 2023