How do I check if an industrial distributor’s inventory counts match its records?
Attend a physical count, or have your accountant do so, and compare it with the system for a sample of items. Check high-value and fast-moving lines first. Then review the adjustment history to see how often and how much the records have been corrected. Large or frequent corrections suggest weak controls.
A distributor’s inventory is often its biggest asset, so confirm that it exists. Ask the seller to allow a count, ideally with your accountant present and a count sheet agreed in advance. Pick a sample across the warehouse: expensive items, popular items and some in odd corners.
Compare the shelf with the record, one line at a time. Small differences happen, but note the direction. If the shelf is consistently short, find out why. Theft, damage, unrecorded returns and shipping errors are all possible causes. Ask for the log of adjustments and write-offs. Who can make them, and does anyone review them? A business with tight controls can show you the trail. Photograph the shelf labels and bin locations if the warehouse is hard to read, and keep your own copy of the count sheet. If the seller refuses a count, treat that as information about how the business is run.
Look at items held for customers, on consignment or in transit. They affect what counts as the seller’s stock. Check whether any inventory is pledged to a lender. Agree with the seller how the count will feed into the closing figures, and ask your lawyer how that is written into the purchase agreement.
Key takeaways
- Attend a witnessed count and compare shelf quantities with the system.
- Review the history of adjustments, write-offs and who approves them.
- Check for consignment, in-transit or pledged stock.
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentWhat is inventory
- 02Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 03Business Development Bank of CanadaGovernmentWhat are the steps to buying a business?
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