We have some weird historical spikes in our working capital and a few old inventory write-offs from legacy product lines. How do we present these balance sheet anomalies to a buyer so they do not try to adjust our purchase price at closing?

Question

Tyler Smith · Accepted Answer

Buyers look at historical working capital trends to establish the working capital peg, which is the amount of net working capital you must leave in the business at closing. If you have abnormal spikes or legacy inventory write-offs, a buyer will use those anomalies to argue for a higher peg, which forces you to leave more cash on the table.

You must proactively address these anomalies on your exit runway. Do not wait for the buyer's due diligence team to discover them and draft their own narrative. Work with your leadership team during your quarterly Level 10 Meetings™ to clean up your balance sheet now. Write off old, obsolete inventory immediately and establish a consistent, documented policy for inventory management.

Create a detailed, month-by-month analysis of your working capital over the last thirty-six months. Document the specific operational reasons behind any spikes, such as strategic bulk inventory purchases or temporary supply chain disruptions. When you present this data to a buyer, package it with clear explanations and adjustments that normalize these events. Showing that you understand your working capital trends and have corrected historical inefficiencies prevents the buyer from using standard balance sheet noise to reduce your walk-away cash.