Not including inventory?

June 16, 2025

by a searcher from University of Virginia-Darden - Darden School of Business in Charlottesville, VA, USA

I often see businesses that do not include inventory in the sales. The inventory is a key part of the business lifeblood. How do you all handle these situations?

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Reply by a searcher
from Columbia University in Fairfax, VA, USA

This is pretty common, but almost always unacceptable. Sellers should definitely get compensated for inventory, but also... inventory needs to be included in a normalized level of Working Capital that's delivered at close as part of the purchase price. If there's excess inventory, you could carve that out and negotiate separately (just ensure it's not stale inventory). Run a working capital analysis using Balance Sheet data to get a sense of Cash Conversion Cycle (CCC) and Days Inventory Outstanding (DIO). Paying for inventory separately is effectively increasing the purchase price. If that’s a conscious choice and you’re comfortable with it, fine. But if you’re buying a turnkey business, inventory should absolutely be part of the deal. Your point about inventory being “key to business operations” is exactly right. That’s the framing I’d use with the seller. Just make sure you have the numbers to back it up.

Reply by an investor
from University of Puget Sound in Seattle, WA, USA

I agree with what's said above and should be factored into net working capital, but would add a few points on why it may make sense to do so separately [or rationale that I've heard]: 1. Inventory is normally easier to finance than other assets. It's not as easy as accounts receivable (factoring), but there are more loan products that open up. Sellers may have a LoC specifically for inventory that they're trying to clear separately. 2. Inventory can fluctuate significantly in some industries depending on seasonality/MOQ cycles/supply chain/etc. I can see many cases where a distribution company worth $4 million (hypothetical $12mil rev/$1.2mil EBITDA) to have a $1 million swing in inventory, so it can't lump it into the purchase price with a pegged value when negotiating through due diligence. 3. Sellers want to attract more eyes with a lower price with online marketplaces, or know that their systems are way off so they want to deal with it later (or have the buyer do so). 4. Seller's psychologically don't want to lose: "I bought it at X, so I'm selling it at X."

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