The buyer is proposing a cash-free, debt-free transaction, but they are trying to exclude our slow-moving inventory from the net working capital calculation, which would force us to write it off or leave it behind for free. How do we use our inventory turnover metrics and operational processes to defend the full value of this inventory at close?

Question

Tyler Smith · Accepted Answer

During a cash-free, debt-free transaction, buyers will try to use the net working capital calculation to strip value from your deal. A favorite tactic of buy-side auditors is to classify older or slow-moving inventory as obsolete, excluding it from the working capital peg while keeping the inventory after close for free. You must defend the value of this inventory using clear operational metrics. Do not let the buyer make arbitrary decisions based on a basic balance sheet review. Instead, present your weekly Scorecard metrics and your inventory turnover processes. Show how your inventory replenishment is tied directly to current sales pipeline data. Prove that your slow-moving inventory is actually active stock required to service specific long-term maintenance contracts or seasonal client demands. Structure the purchase agreement to include a clear, formula-based definition of slow-moving inventory. If inventory has turned within the last twelve months or is designated for an active customer contract, it must be valued at cost in the final working capital calculation. By grounding the inventory valuation in actual operational utility rather than passive accounting rules, you prevent the buyer from leaving you with unpaid assets at close.