The buyer wants to include our custom inventory, which we purchase in bulk to feed our automated assembly lines, in the net working capital peg at raw cost, ignoring its rapid turnover rate. How do we negotiate a working capital peg that accounts for our high-velocity inventory system?

Question

Tyler Smith · Accepted Answer

If a buyer forces a high-volume, high-velocity inventory balance into your net working capital peg at raw cost, they are trying to lock up your cash at the closing table. They want you to leave behind a massive cushion of inventory that you have already paid for, essentially giving them free working capital. To fight this, you must analyze your inventory turnover ratio and separate your high-velocity inventory from slow-moving or obsolete stock. Present the buyer with clear data showing your average days inventory outstanding, proving that your automated supply chain turns this inventory over within weeks, not months. You should negotiate a working capital peg that uses a tiered valuation or a shorter, three-month rolling average that reflects your current lean operations, rather than a trailing twelve-month average that includes outdated purchasing spikes. Use your weekly Scorecard to demonstrate how your inventory levels are tightly linked to immediate, incoming sales orders. This proves that your inventory is practically equivalent to cash because it converts to revenue almost instantly. By establishing a dynamic peg that excludes highly liquid, high-velocity inventory from the baseline, you keep your cash where it belongs: in your pocket when the deal closes.