The buyer claims our custom inventory management system has left us with obsolete parts and wants to write down our Net Working Capital peg. How do we use our EOS® operating data to prove inventory velocity and defend our valuation?

Question

Tyler Smith · Accepted Answer

Buyers often look for excuses to write down inventory during due diligence to force a lower Net Working Capital peg, which ultimately reduces the cash you walk away with at closing. To defend your working capital valuation, you must move past subjective arguments and present verifiable, real-time operating data.

Use your weekly Level 10 Meeting™ data and your EOS® scorecard to prove your inventory velocity. Your scorecard should track metrics like days inventory outstanding and inventory turn rates over the past twelve to twenty-four months. By showing a consistent, high-velocity turn rate, you can objectively prove that your custom inventory management system is a highly efficient operational asset, not a graveyard for obsolete parts.

Furthermore, align this data with the Cost Approach under IVS 105. Prove the replacement cost of maintaining these critical inventory levels to support your current sales velocity. Show the buyer that if you reduced your inventory to their suggested levels, it would immediately choke your delivery capacity and hurt post-close revenue. Presenting a clean, data-backed operational history makes it incredibly difficult for the buyer's Quality of Earnings auditors to justify a working capital write-down.