To secure our supply chain, we carry a high volume of pre-purchased raw materials, which the buyer is trying to exclude from the net working capital peg as excess inventory. How do we prove this inventory is active working capital to avoid leaving money on the table at close?

Question

Tyler Smith · Accepted Answer

Buyers frequently try to classify raw materials or pre-purchased inventory as excess or slow-moving to exclude it from the net working capital peg. If they succeed, they effectively force you to hand over valuable, paid-for inventory for free at close. You must defend this inventory by proving its direct velocity and operational necessity.

Open up your weekly Scorecard and pull your historical inventory turn rates. Show the buyer the precise connection between those pre-purchased materials and your final product delivery times. If you can prove that your high inventory levels are what allow you to maintain a short delivery cycle and achieve your high customer retention metrics, the buyer cannot argue it is dead capital.

Use your EOS® Accountability Chart to highlight the seat responsible for supply chain management. Show that your purchasing decisions are not random stockpiling, but rather a structured, strategic process managed by a leader who GWCs™ their role. Presenting the data-driven logic behind your inventory levels proves that this is a highly optimized operational asset, not an inefficient cash drag.

Structure a working capital compromise in the purchase agreement. If the buyer remains skeptical, propose a post-closing true-up mechanism. Agree to include the inventory in the peg, and if any of that specific raw material remains unused after six months, you will compensate them. Because you have the data to prove your inventory turns, you can confidently take this bet, secure your cash at close, and protect your hard-earned valuation.