How pub stock valuations impact pub sales: a guide for sellers and buyers

When it comes to buying or selling a pub, an accurate pub stock valuation plays a pivotal role in ensuring a fair and transparent transaction. A stock valuation determines a pub’s inventory value, which is vital for sellers who are looking to maximise their sale price. For buyers it is the opposite: they look to a pub stock valuation to ensure that they are paying a fair price and to start with a clean slate, as well as an accurate record on inventory at the point that they want to start running their pub. In this article, we explore how a pub stock valuation works, the factors that affect it, and why both parties must get it right. 

What is a pub stock valuation? 

A pub stock valuation is the process of determining the monetary value of a pub's entire inventory and products at the time of a sale. It involves obtaining detailed quantities of every item in the pub, from alcoholic to non-alcoholic beverages and food products. This process is typically carried out by an independent auditor or a professional stocktaking expert who accurately counts and values each available inventory product based on its current market worth. The goal is to arrive at a fair, transparent, and unbiased valuation that reflects the true value of the stock being transferred. 

Why is a pub stock valuation important? 

A correct pub stock valuation is crucial for both the seller and the buyer. For the seller, it ensures that they receive a fair price for their assets and that the valuation reflects the actual worth of their inventory. Without a proper valuation, sellers risk undervaluing their stock, potentially leading to financial loss. For the buyer, it serves as a safeguard against overpaying for stock that may be outdated or unsellable. Stocktaking experts, like Venners, emphasise the importance of having an independent auditor involved in the process to avoid potential disputes, maintain transparency, and ensure that both parties are in agreement regarding the stock's value.  

The role of auditors in a pub stock valuation 

Independent auditors play an essential role in ensuring that pub stock valuations are accurate. They bring objectivity and expertise to the process, providing both sellers and buyers with confidence that the valuation reflects the true worth of the pub’s stock. As the Chartered Institute of Stocktaking (CIS) highlights, auditors must be impartial and thorough, documenting every detail of the stock to avoid potential disputes in the sale. 

How is a pub stock valuation done? 

When a pub stock valuation is completed, there are several key steps and factors that determine the current value of stock held. Here’s an overview of how it typically works: 

1. Inventory count: The first step in every pub stock valuation is a detailed stocktake. Auditors count every item in the pub, from bottles of wine to kegs of beer and non-alcoholic products. This inventory count is the foundation of the valuation.  
2. Condition and age assessment:  Auditors take great care to assess the sell-by dates and expiration of food and drink items. The auditor carrying out the pub stock valuation will automatically exclude any out-of-date stock, and stock that is in poor condition or damaged. Only stock that is sellable will be assigned a cost price.  
3. Price check: The value of each product is looked up against invoice paperwork that is available on site, in order to match prices to what would have originally been paid for the products. If this paperwork is not available and no supplier information can be found then, as a last resort, the auditor may value the products against the current market price. 
4. Valuation report: Once the audit is complete, the auditor prepares a valuation report, which includes the overall value of the stock, broken down by category and product. This report is shared with both parties to ensure full transparency. 

Seller’s Perspective: How to prepare for a pub stock valuation 

For pub owners planning to sell, proper preparation is key to ensuring a smooth valuation process. Here’s how you can prepare: 

1. Organise your stock: A well-organised stockroom, cellar, bar and fridges are easier to assess. Ensure that all items are correctly labelled and categorised, making it easier for the auditor to perform an accurate count. 
2. Review stock condition: Replace or dispose of damaged, expired, or unsellable items before the audit. This will help prevent the disappointment of an undervaluation due to poor-quality stock. 
3. Organise your records: Delivery notes, along with invoices, are essential for determining the correct cost price of the stock at hand.  They also help to verify the quantity and types of items received, ensuring that the stock records accurately reflect the inventory. Make sure you have all records available for the auditor when they arrive to do your pub stock valuation. 
4. Know your suppliers: Having up-to-date pricing information from suppliers can assist in the valuation process. Auditors rely on accurate market prices to determine stock value. 

Buyer’s Perspective: Verify a pub’s stock valuation before you buy 

As a potential buyer, it is essential to verify the pub stock valuation presented by the seller. There are a few key actions you can take: 

• Hire an independent auditor: Engaging your own independent auditor ensures that you have an unbiased opinion on the value of the stock. A third-party assessment will help you confirm the valuation is accurate and fair. 
• Agree pre-sale terms: It is worth agreeing any terms on what you are willing purchase from the seller before the valuation takes place. For example, you may wish to exclude items such as open bottles and breached kegs. 
• Check the stock condition recorded: Carefully review the expiry dates and damaged goods, especially for perishables. If anything is nearing expiry or appears damaged, be sure to factor this into the final price you offer. 

Conclusion: Why a pub stock valuation is essential for a fair sale 

Pub stock valuations are a critical component of the pub sales process, ensuring that both parties involved are treated fairly. By understanding the key steps involved in a stock valuation, the factors that influence it, and how to prepare for an audit, pub owners can make the process smoother and more transparent. Whether you're buying or selling, having an accurate valuation can make a significant difference in the final sale price and ensure a successful transaction. 

To find out more about pub stock valuations, contact the expert team at Venners, email enquiries@venners.com or call 01279 620 820.