What "+SAV" actually means when you buy a shop in Birmingham

Why the stock is priced separately at all

A business sale is really several different things bundled together. There is the lease, the goodwill - the value of an established trade with established customers - and the fixtures and fittings: the chillers, the shelving, the till system, the tobacco gantry.

All of those can be valued weeks ahead of completion and written into the contract, because they do not change between the handshake and the handover. Stock does. A shop turning over a million pounds a year is buying and selling stock every single day it opens. The shelves on the day the deal is agreed bear no relation to the shelves on the day you get the keys.

So the trade handles it by agreeing everything else up front and settling the stock at the last possible moment, on a count taken either the evening before completion or early on the morning of it, while the shop is closed. Whatever is genuinely there is counted, valued, and added to the completion figure.

What the stock is actually valued at

This is the most common misunderstanding we encounter, and it runs in the buyer’s favour, so it is worth being clear about.

Stock is valued at cost, not at retail. If there is a bottle of spirits on the shelf with a £22 price label on it, you are not paying £22. You are paying what the outgoing owner paid their wholesaler for it, perhaps £14.50, because the margin between those two numbers is the profit you will earn when you sell it. You are buying the stock, not the profit on it.

Cost means the invoice price, including any delivery or freight the supplier charged, and it has to be evidenced. A proper valuation is built from recent purchase invoices and supplier price lists, not read off the shelf edge. Where a line has no recent invoice behind it, the standard accounting rule applies: the lower of cost or net realisable value. If something cost £8 but will realistically never sell for more than £5, it goes in at £5.

One wrinkle specific to shops is VAT. Stock is normally valued net of VAT where both parties are VAT registered and the sale qualifies as a transfer of a going concern. Your solicitor will confirm which treatment applies to your particular deal, but do not assume a figure you are quoted is gross.

Who the stocktaker works for, and who pays

Neither of you, and both of you. That is rather the point.

A business transfer stocktake is carried out by an independent stocktaker instructed jointly by the two sides. We do not act for the buyer and we do not act for the seller. The figure has to be one both parties can rely on, and that only works if the person producing it gains nothing from it landing high or low.

The convention across the UK trade is that the fee is split equally between the two parties. On a typical Birmingham convenience store or off licence that is a modest cost each, set against a stock figure that will usually run well into five figures.

At the end of the count we issue a stock certificate: a signed statement of the valuation with the detail behind it. It goes to both sides, and both solicitors use it to release funds. That certificate is the document the completion turns on, which is exactly why it is worth having it produced by someone with no stake in the answer.

Five things that cost Birmingham buyers money

Most transfer counts are straightforward. The ones that turn into an argument at eight in the morning on completion day almost always involve one of the following - and every one of them is avoidable if it is raised in the contract weeks earlier.

• Short-dated and out-of-date stock. The usual convention is that anything within three months of its expiry date is excluded from the valuation. That is a convention, though, not a law. Buyers of food-led stores often want six months instead. Whichever you want, it needs to be written into the sale agreement, not raised for the first time while somebody is standing there holding a scanner.
• The sell-down. A seller who knows their stock will be bought at cost has little incentive to reorder in the final fortnight. You can arrive to find the fast-moving lines thin and the slow movers untouched, which means paying full cost for the stock that was not selling while having to restock everything that was. Walk the shop a week before completion and compare it honestly to what you saw when you first viewed.
• Dead stock nobody will admit is dead. Seasonal lines long past their season, a world-food range that was discontinued two years ago, Christmas stock in June. All of it is technically sellable, which is precisely why it needs a written exclusion or an agreed discount basis before the day.
• Tobacco and the gantry. High value in a small physical space, tightly regulated, and subject to duty rates that move. It is counted meticulously and priced from current invoices. Expect it to be a significant single line in the total, and make sure the compliance of the gantry itself is dealt with under fixtures and fittings rather than stock.
• Unbarcoded lines. Birmingham has a large independent grocery and cash-and-carry sector, and a good deal of world-food stock simply is not barcoded to UK EPOS standards. Those lines have to be entered manually against a priced list. It is entirely doable - it just takes longer, and a stocktaker who has not been warned will under-quote the time and the count will overrun into trading hours.

How the count runs on the day

The count is scheduled for a time when the shop is not trading, typically after close the night before completion or early in the morning before opening. A convenience store or off licence of ordinary size is usually a few hours with a small team.

Everything is counted. Transfer valuations are done on a full count basis rather than a sample: every distinct line, on the shelves, in the chillers, in the back store and in the cellar. Nothing is extrapolated, because an extrapolated figure is exactly the sort of thing that gets challenged afterwards.

Both parties, or their representatives, are welcome to be present throughout, and in practice at least one of them usually is. If a question comes up - whether a damaged case counts, how a part-used display unit should be treated - it gets resolved there and then with both sides in the room, rather than in a letter a week later.

The valuation is produced on the day. For a transfer, the certificate needs to be in your solicitor’s hands within hours rather than days, because the completion money cannot move until it is.

What Birmingham buyers in particular should check

The West Midlands market has a few characteristics worth understanding before you commit to anything.

The independent grocery sector here is large and the product ranges are wide. Stores in Sparkhill, Handsworth, Bordesley Green and Alum Rock frequently carry extensive world-food lines alongside a standard convenience range. That pushes the line count up considerably, and line count rather than floor area is what determines how long a count takes and what it costs. A compact shop carrying three thousand distinct lines is a longer job than a larger one carrying eight hundred.

Many of these shops also buy substantially from cash-and-carry rather than on account from a symbol group. That affects evidence. Cash-and-carry receipts are perfectly good proof of cost, but they need to be physically available on the day, so ask the seller to have the last few months of purchase paperwork to hand.

And if the shop sits in the city centre or on one of the busier high streets, access and parking for a count team at six in the morning is a genuine logistical point. It sounds trivial until a count that was meant to finish before opening has not finished before opening.

A short checklist before you exchange

None of this is legal advice and your solicitor should see all of it. But these are the points that, in our experience, are far better raised before contracts are exchanged than after.

• Is the exclusion period for short-dated stock written into the agreement, and is it a period you are actually happy with?
• Is there a cap on the stock figure? Some agreements set a maximum the buyer is obliged to take, which protects you against arriving to find the shop deliberately overstocked.
• Is damaged, shop-soiled or faded stock dealt with explicitly rather than left to the day?
• Who is instructing the stocktaker, and is the equal fee split confirmed in writing?
• Has the seller agreed to make purchase invoices available to support the valuation?
• Is there a dispute mechanism if the two sides cannot agree the final figure?
• Does your funding allow for a stock payment whose amount you will not know until the day before?