Take Stock: Navigating the Shift in U.K. Inventory Valuation & Disposal
The traditional asset valuation and disposal business has changed dramatically in recent years as the U.K. moves from a manufacturing economy to a service economy. Traditional assets such as machinery and equipment and freehold property are often replaced with industrial and consumer inventory and intellectual property such as intellectual property rights (IPR), trademarks and domain names.
The valuation and disposal of inventory requires a deep understanding of the fabric of the business, smart thinking and specialist exit planning skills to maximize realization from an insolvency process. Inventory can be wide ranging, constantly changing, extremely complex and needs to be thoroughly understood to be accurately valued.
The role of the traditional valuer has evolved into that of a professional advisor who understands how to value and dispose of these changing asset types to ensure maximum realisation is achieved for creditors.For example, the valuation of inventory requires a unique combination of business analytical skills, accountancy knowledge and workout experience to arrive at an accurate realisable value.
The disposal of inventory requires a strong skills in sales and negotiation supported by a deep understanding of the work-outs channels, whether it’s by selling inventory at a discount to the existing customer base or to a competitor or other buyer via private treaty, on-line auction or live auction. The exit plan should map out the exit period, key staff to be retained, control of infrastructure, existing customer service issues and discounting strategy.
The work of the restructuring professional is complex and time-consuming, and there are onerous implications if potential problems are not identified in a swift manner. It is important for the valuer to work closely with restructuring professionals to provide accurate valuation advice and define the disposal strategy and examine the value and title throughout the sales process in order to maximise the value of recovery for creditors.
Restructuring professions should expect the following as a minimum from the valuation professional:
- A deep understanding of the fabric of the business by being embedded with the sales team
- Accounting knowledge of costing, margins, inventory turn
- Inventory profiling, dynamics, mix, ageing and slow moving and obsolescence
- Customer profiling, concentration, branding, royalties and contractual issues
- Suppliers, retention of title issues, liens and ransoms, obstacles
- Goods in transit feasibility analysis
- Detailed exit strategy with appropriate costing
Managing accelerated inventory realisation (AIR) programmes is complex, and without any structured processes in place it is easy to lose value. The AIR programme involves selling slower moving fringe inventory while retaining maximum value of the core inventory while the business is up for sale.
As with all market valuations, a deep understanding and experience in the shifts in inventory valuation and disposal is key in providing sound advice as issues, challenges and opportunities arise throughout the recovery process. Next time you engage a valuation expert, take stock and make sure you have the right partner to provide the correct advice and expertise to achieve maximum inventory realisation.