Navigating Working Capital & Deal Structuring and SBA Strategy in Business Acquisition

In business acquisition, the treatment of inventory in pricing structures raises significant considerations. Buyers often face the challenge of understanding why inventory is priced separately from the business itself, particularly when sellers argue that it is essential for operation. This separate pricing can be seen as a protective measure for sellers to avoid offloading unmarketable inventory. Yet, buyers should not be held responsible for the seller's past inventory decisions and should critically assess the saleable value of the inventory. A strategic approach involves discounting inventory based on its turnover rate—paying 0% for slow-moving items, 50% for inventory with one to two years of turnover, and full value for inventory under one year. Effective deal structuring requires buyers to identify and negotiate a reasonable amount of working capital, including inventory, necessary for the business's operation during the LOI stage. Engaging quality of earnings (Q of E) advisors early in the acquisition process can provide essential insights and prevent complications later on, enhancing overall deal integrity and success.