“Walk In Walk Out” Contracts.
When you’re buying or selling a business what does walkin-walkout really mean
The standard REIQ Business Contract provides and asks you when completing the contract as one of the key considerations in its standard format whether the sale includes stock in trade or will it be a walkin-walkout contract
The alternative is whether you will be paid separately for that stock and trade or work in progress you have stored in the business in addition to the price for goodwill plant and equipment.
As a Buyer you need to consider whether you’re going to make an offer as an all up figure inclusive of stock or whether you are going to pay extra for that stock.
As a Seller you need to ensure that you are getting full value for your business and not giving away assets such as stock that you have already paid for.
It starts becoming more complicated for you to protect yourself once you’ve made that decision especially in the event of purchasing stock as the consideration then turns on the date when the stocktake should take place which usually is the day before settlement, and whether that is important depending upon the business AND most importantly what stock should be purchased.
The quality of the stock becomes a major issue in some business purchases for example, there is a need to determine whether it’s good and “saleable stock,” has it gone past the shelf life of the product and can you reject the stock in that event and should you have to pay for that.
The standard conditions give protection to a buyer to only pay for good and saleable stock in this regard
As a seller have you underestimated the value of the stock the Buyer pays for and meaning you are stuck with stock you don’t need or want
Also will you have to invoke the provisions to appoint an independent stocktaker who will end up charging the parties for undertaking a formal stocktake.
Numerous disputes occur and therefore, to better understand your obligations, you need to understand how the clause works, whether you are buying or selling.
Use the following guide to help you through this course as follows…..
In accordance with the standard conditions of sale for an REIQ business contract, if the contract is not noted as walk-in walk-out then an amount of dollars is included in the contract schedule forcing the buyer to purchase from the seller all the goods and saleable stock in trade at the landed invoice cost as may be agreed between the seller and buyer.
Unless an agreement as to value is carried out then a Stocktake must be carried out by an independent stocktaker (stocktaker) appointed by the seller and buyer.
If no agreement can be made between the Seller and Buyer about that independent person then it will be such person as appointed by the seller’s agent.
The stocktaker will determine 2 questions – the value of the stock and the saleability of the stock. The stocktake must be carried out after the close of business on the nominated day of stocktake which is usually the day before settlement.
The stock taker’s fees are borne equally by the seller and buyer.
The buyer must pay for the stock in trade to the maximum nominated figure as set out in the contract schedule.
If the value of the stock in trade exceeds that amount previously agreed or set out in the contract the buyer may elect or reject such items of stock selected solely at the option of the buyer in order to reduce the total figure.
Further difficulty arises if there is no stock figure nominated, (so it is always important to nominate the actual stock figure as part of the contract negotiations); because if you don’t agree upon the value, then there is a necessity to appoint an independent accountant, and such independent accountant must then be agreed to by the seller and the buyer, and in failing agreement then nominated by the seller’s agent, and the seller and buyer pays the fees of the accountant in equal shares, the accountant then values the work in progress or the stock in trade notifying the seller and buyer of the value of the stock in trade at least two (2) business days before the date of completion.
The valuation carried out by the accountant is binding on the seller and buyer. Any figure of stock as valued then has to be paid by the buyer to the seller.
Any final determination made by the accountant is final and binding on both parties.
Any questions about this or any part of the business contract process feel free to ring this office.