Handling of inventory question

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by a searcher from Purdue University
in Chicago, IL, USA

1yr ago

Handling of inventory question

I am putting together an LOI for a business in the heavy truck industry. They sell, b2b and b2c, heavy truck accessories, parts and tools/eqiupment. Also, manufacture a few pieces. They do not keep a large amount of inventory, but there is some. What is the best way to handle including inventory purchase in the LOI if I am not sure of the actual cost of inventory, but expect to figure that out during due diligence?

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reply by a lender 1yr ago
from California State University, Sacramento in Seattle, WA, USA

Of note, the SBA loan needs the entire price including inventory to meet DSC hurdles. Be careful if the seller starts talking about him being the lender on the inventory. That gets very messy and not very easy to execute in real life.

reply by a searcher 1yr ago
from Cornell University in Boston, MA, USA

Inventory is just one of the assets that creates the Adjusted EBITDA/Free Cash Flow of the business. Inventory is purchased as part of the business via the net operating working capital (i.e., (Trade A/R + Inventory + Prepaids) - (Trade A/P + Operating Accruals)).