For a distributor or manufacturer, high inventory feels like a badge of honor. It means you are reliable. It means you are protecting your clients from supply chain shocks.
But when you sell, that “reliability” can cost you dearly.
The Conflict
- The Seller’s View: “My EBITDA (profit) dictates the business is worth $4 Million. The inventory is a separate asset worth $3 Million. I want $7 Million.”
- The Buyer’s View: “Your business generates that profit because you have that inventory. If I take away the inventory, the profit stops. Therefore, the inventory is ‘Working Capital’ and is already included in the $4 Million price.”
The Solution: Defining “Normal”
To get paid for your inventory, we have to prove it is “Excess.”
We analyze your turnover rates to calculate a “Normal Net Working Capital” target (the peg).
- Example: Let’s say an average company in your industry needs $1 Million in stock to generate your sales.
- The Argument: We argue that only the first $1 Million is included in the purchase price.
- The Win: The remaining $2 Million is “Excess Inventory.” We negotiate for the buyer to pay for that dollar-for-dollar on top of the purchase price.
The Preparation
If you can’t prove it’s excess, the buyer won’t pay for it.
- Segregate the Stock: We need to clearly identify which inventory is “active” vs. “safety stock.”
- Liquidate the Dead Weight: If that $3 Million includes product that hasn’t moved in 2 years, it is worth $0. Sell it now for cash; don’t wait for a buyer to reject it.
Now, let’s make sure it helps your bank account. We fight to separate the “gas” from the “spare parts” so you get paid for both.