Factoring Inventory Into Your Deal Structure
Key Takeaways
- Inventory is often the most contentious line item in a small business sale
- Most buyers won't pay full value for excess, aged, or slow-moving inventory
- How inventory is handled affects both the purchase price and the closing mechanics
- Getting your inventory in order before going to market puts you in a stronger negotiating position
If your business carries significant inventory — products, parts, raw materials — expect it to be one of the most negotiated parts of your deal.
Inventory seems straightforward. You paid for it. It's sitting on a shelf. Surely it has value, right?
Yes. But probably not the value you're thinking.
How buyers think about inventory
Buyers don't value inventory at what you paid for it. They value it based on what they can actually do with it after the sale.
Current, fast-moving inventory that supports active sales? They'll pay close to cost. Aged inventory that's been sitting for two years? They'll pay a fraction — or nothing. Obsolete inventory? They may see it as a liability, not an asset.
The two ways inventory gets handled
Included in the purchase price at an agreed value negotiated upfront. Or handled on a net working capital basis at closing, where inventory is counted and valued in the days before close and adjusts the final price up or down. The second approach can create surprises at the closing table if you haven't thought it through.
What to do before you go to market
Do a serious inventory audit. Get rid of what's clearly unsaleable. Organize what remains and document its age, cost, and turnover rate. Buyers will look at this closely.
Inventory disputes are one of the most common reasons deals get complicated at closing. We help you get ahead of this before it becomes a problem.
← Back to Resources