When selling your business, properly valuing your inventory is essential — and often more complex than it seems. Unlike real estate or equipment, inventory value fluctuates over time and is taxed differently, which can impact your final sale price.

Inventory includes whatever your business uses to generate revenue — for retailers, that’s merchandise; for manufacturers, it may include raw materials, packaging, and finished goods. Before listing your business, evaluate which items are still sellable and which are outdated or damaged. Buyers won’t pay for unsellable stock, so keeping your inventory well-managed in the years leading up to a sale can make negotiations smoother.

There are several ways to value inventory. Some business owners use FIFO (First In, First Out) to assume older stock sells first, showing higher profits. Others use LIFO (Last In, First Out) to assume newer stock sells first, lowering profits and taxes. The Weighted Average Cost method averages costs for a balanced view, while Specific Identification assigns exact costs to each item but is more detailed to calculate.

When it comes to the sale, both buyer and seller must agree on how inventory is valued, how much is included, and whether it will be sold separately from the business. Inventory is taxed as ordinary income — not at the lower capital gains rate — so sellers often benefit from expert advice before closing.

Working with a CPA, attorney, or business broker ensures your inventory is valued accurately and fairly, helping you get the best possible return when it’s time to sell.

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