I am hoping to buy out my partner, what is a fair price for the inventory?

Question

I am 50% owner of a used bookstore. My partner wants to leave the business, so I am hoping to buy her out. The inventory is worth about $50,000 (of what we would sell it for), when we bought the inventory it was worth $48,000, so we paid $16,000 (1/3 of the $48,000). My partner tells me that I should pay her $25,000 for her half of the inventory, but that is what I would sell it to the customers for, in which case I wouldn't be making any profit, even if I sold all of the books! I figured I would pay her 1/3 for the books , so about $16,600, (plus the fixtures, half profit and goodwill), just as we did when we bought it. Am I wrong in this, what is the usual price in this situation?

Answer 1

Don't the age and the time books have been sitting on the shelf enter into the equation? If part of the inventory does not move it has less value and should be depreciated regardless of your purchase price. In fact some of it may be obsolete if no one ever asks for it.  You can never price your old inventory at full value when paying off  the person who wants to leave the business. Now you will be assuming all the risk and that alone is worth considering in the buyout.

Answer 2

You owe book inventory value. You have a right to write down on book any item that has been on the inventory for an unusual period, such as over a year. This revaluation is done during an inventory value audit, that includes quantity and valuation.

If one of you does not agree to the book value the other proposes  the person who thinks it is worth more is entitled to buy the item at the price the other puts on it. Ordinarily you would propose a new book value on old stock, and your partner would have the option to buy at that price.