Checking Warehouse Stock Before You Invest in Uzbekistan

When you value a trading or distribution business, stock is often the biggest line on the balance sheet and the one you can least see from abroad. A figure in the books reading "goods: 1,200,000 dollars" does not tell you whether those goods exist, whether they can be sold, or whether they belong to the company at all. A count on site before you sign costs little next to the price of a wrong number built into the deal.

What you actually need to learn

A pre-investment stock check answers four questions, and each one needs a different kind of evidence:

• Existence: are the goods physically there, in the places the records say?
• Quantity: does the count match the balance in the books, item by item and batch by batch?
• Condition: can the goods be sold, or are they damaged, expired or obsolete?
• Ownership: do they belong to the company, or are some of them held for a third party, on consignment, or pledged to a lender?

A total at the bottom of a spreadsheet answers none of these. Only a count that reaches the shelves does.

Five checks before you sign

1. Freeze the books first. Ask for the balance list by item, batch and location as of a stated date, and keep your own copy before anyone visits the warehouse. This stops the records from being adjusted to fit the shelves.
2. Choose what is counted yourself. If the seller picks the sample, the sample will be flattering. Take the largest lines by value, then add a random selection of smaller ones.
3. Count in the aisles, not in the office. Open cartons, check that the label matches the contents, and check that pallets are full all the way through and not only on the outside.
4. Read the dates and the condition. Note expiry dates, damaged packaging, dust, and stock that has plainly not moved for a long time.
5. Match batches to purchase documents. For the biggest lines, ask to see the supplier invoice and the receiving note. Then you know the goods were bought, not merely that they are present.

A worked example (conditional figures)

Imagine the books show 400 lines worth 1,200,000 dollars. The team counts the 20 largest lines, which represent about 720,000 dollars, and finds three problems:

• One line is booked at 5,000 cartons at 30 dollars each, but only 4,200 are found. The shortfall is 800 cartons, or 24,000 dollars.
• A second line, valued at 40,000 dollars, is past its expiry date.
• A third, valued at 60,000 dollars, turns out to be held on consignment for another company.

Together that is 124,000 dollars, a little over 10 percent of the declared stock, found by looking at only 20 lines. Without the count, you would have paid for that amount in the price. With it, you can renegotiate, ask for a guarantee, or decide to walk away. Notice that the biggest problems were not about quantity alone but about expiry and ownership, which no amount of reading the books will reveal.

Timing and how to use the result

Run the check after the seller has agreed in principle but before the price is final, so that the result can still move the price. Make it clear to everyone that the count is a normal condition of the deal and not an accusation. Serious sellers usually accept this without difficulty, and a seller who resists it has told you something too.

It also helps to decide in advance who attends on your side. A representative or adviser present during the count saves many questions afterwards.

How the result is written into the contract, and which guarantees or price adjustments apply, is a matter for your legal adviser. The count gives that adviser facts to work with: item, quantity, location and a dated photograph.

In short

Stock is the part of a business you can be most wrong about from a distance. Confirm that it exists, that the quantity is right, that it can be sold and that it is owned by the company. WarehouseDepo does this for investors who cannot stand in the warehouse themselves: an independent team counts on site, sets the result against the books and reports with dated photographs.