What Does SAV Mean When Buying a Business?

What Does SAV Mean When Buying a Business?

What does SAV stand for?

You will often notice the commonly used acronym SAV when looking at businesses for sale.

SAV stands for “stock at valuation” but what does that actually mean for someone interested in buying the business?

Simply put, it is a price–or value–that is levied on the stock held at a given time by that company.

Put simply SAV or stock at valuation refers to the stock value determined just prior to the sale of the business and is not included in asking price for the business.

Once the stock value has been determined, the final sum that the buyer is required to pay to the seller for their business will be adjusted accordingly.

View: Our business term glossary

What are the implications of a business listing that has + SAV?

Hypothetically, if you were looking at purchasing a clothing retail business that had the asking price of $100,000 + SAV, you will need to account for the fact that the $100,000 asking price excludes the value of the stock at the time of valuation.

If this business has over-invested in stock which they have yet not sold, you would need to pay for that stock on top of the asking price. This could bring that original $100,000 asking price to $350,000 if they had $250,000 worth of unsold stock.

Why SAV is valued separately to the asking price of the business

When purchasing a business, buyers should be most concerned with the sales, overheads, margins and profit as these metrics are what most business valuations are based off.

Stock levels are still important in determining the health of a business and sharply declining stock levels can be indicative of a business that is liquidating stock to show a higher profit.

It is a variable that is dependent on many circumstances such as what stock the business purchases, what quantities and the seasonality of the business, eg if it is a party business then stock levels would be high prior to holidays and lower after a holiday period.

For the reasons listed above, it is quite common for businesses to be sold for an asking price + SAV.

 

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