Inventory Valuation Disputes - The Count That Determines Your Check

You’ve negotiated for months. The purchase agreement is signed. The wire transfer is scheduled for next week. Then your buyer’s team shows up at your warehouse with clipboards, and within 72 hours, they’re claiming your inventory is worth $400,000 less than you stated. Welcome to inventory valuation disputes—the closing mechanic that catches more sellers off-guard than any other element of the transaction.

Executive Summary

Physical inventory counts conducted at or near closing establish values that directly affect your final purchase price through working capital calculations and inventory-specific adjustments. What many sellers assume will be a straightforward counting exercise becomes a high-stakes negotiation where different valuation methodologies, obsolescence assessments, and count procedures can shift significant value between parties—often ranging from $50,000 to $500,000 or more depending on transaction size and inventory complexity.

This article examines the critical elements of inventory valuation in M&A transactions, including the differences between FIFO and weighted average costing, standard cost variance treatment, and obsolescence reserve methodologies. We identify the most common dispute areas where buyers and sellers reach dramatically different inventory values from the same physical count, and we provide practical frameworks for managing inventory determination processes. Whether your inventory represents 15% or 60% of your working capital, understanding these mechanics before you reach the closing table improves your negotiating position and helps prevent last-minute surprises that can derail transactions or reduce your proceeds. We also examine cases where inventory disputes have caused deals to fail entirely—lessons that underscore why proactive preparation matters, though even thorough preparation cannot guarantee dispute-free closings.

Introduction

In the universe of M&A closing mechanics, inventory valuation disputes occupy a peculiar position: they’re simultaneously predictable and surprising. Predictable because experienced dealmakers know that inventory counts generate disagreements in the majority of transactions involving significant inventory holdings. Surprising because most sellers—even sophisticated business owners who’ve managed inventory for decades—don’t anticipate how contentious the process can become.

The mathematics are straightforward. In a typical working capital adjustment mechanism, every dollar of inventory shortage at closing reduces your purchase price by exactly one dollar. If your purchase agreement includes an inventory-specific adjustment (common in manufacturing and distribution transactions), the stakes multiply. A buyer who successfully argues that your inventory is overvalued by $300,000 keeps an additional $300,000 that would otherwise have gone to you.

What transforms routine inventory counts into significant disputes? The answer lies partly in the gap between how you’ve valued inventory for internal management purposes and how a buyer’s accountants interpret the same physical goods. But that’s not the complete picture. Inventory disputes also arise from regulatory requirements that vary by industry, differences in how GAAP principles are applied across accounting firms, market conditions that affect obsolescence assessments, and the basic negotiation dynamics of M&A transactions where buyers have economic incentives to reduce closing payments—regardless of how well-documented your methodology may be.

Your cost methodology, your obsolescence reserves, your treatment of work-in-process, your handling of consignment inventory—each of these creates potential variance between your stated inventory value and what a buyer’s team calculates using their interpretation of GAAP and your purchase agreement.

We regularly advise middle-market sellers and see inventory-related disputes in the majority of transactions with significant inventory components—particularly in manufacturing and distribution businesses. Disputed amounts typically range from $50,000 to $500,000 or more, depending on business size, industry, and inventory complexity. We’ve seen transactions where inventory disputes exceeded $500,000 on deals under $15 million—and we’ve also seen deals where unresolved inventory disputes caused transactions to collapse entirely. The difference between successful and failed outcomes typically isn’t the quality of the inventory—it’s the quality of the preparation and the clarity of the governing documents.

Why Inventory Valuation Disputes Occur

The Basic Disconnect

Inventory valuation disputes stem partly from a basic disconnect between how sellers think about inventory and how buyers approach it during closing. As a seller, you’ve managed your inventory as a working asset. You know which items move quickly, which ones require occasional promotions to clear, and which ones you’ll eventually write off. You’ve made pragmatic decisions about valuation that serve your operational needs.

Buyers approach closing inventory with a different lens entirely. They’re not evaluating your inventory as a going concern—they’re determining how much to pay for it right now, knowing they’ll own any problems the moment the transaction closes. Every slow-moving SKU represents future markdowns. Every discontinued component represents potential obsolescence. Every cost variance represents a valuation question. Buyer teams are often compensated or evaluated on deal economics, creating institutional incentives to challenge valuations regardless of documentation quality.

But perspective differences explain only part of why disputes occur. Additional factors include:

Regulatory and compliance requirements: Certain industries face specific inventory valuation rules. Pharmaceutical companies must account for expiration dating. Food and beverage businesses face FDA compliance requirements that affect salability. Medical device manufacturers face regulatory approval status that impacts inventory value.

Accounting firm interpretation differences: Two competent accounting firms can legitimately interpret GAAP inventory standards differently. What your auditors considered acceptable methodology may face challenge from the buyer’s accountants who prefer different approaches. Both positions may be defensible under GAAP, yet produce materially different values.

Market condition impacts: Economic conditions affect obsolescence assessments. During supply chain disruptions, excess inventory may be valued positively. During demand contractions, the same inventory may be viewed as obsolete. The timing of your transaction matters significantly.

Strategic negotiation dynamics: Some buyers systematically challenge inventory values as a negotiation strategy, knowing that sellers under time pressure may concede rather than delay closing. Understanding this dynamic helps sellers prepare appropriately—though preparation alone cannot neutralize all buyer pressure.

The Working Capital Connection

Understanding why inventory disputes matter requires understanding how working capital adjustments function in M&A transactions. Most middle-market deals include a working capital mechanism that compares closing working capital to an agreed target. If closing working capital exceeds the target, you receive additional consideration. If it falls short, your purchase price decreases.

Inventory typically represents the largest single component of working capital for manufacturing, distribution, and retail businesses. We regularly see inventory account for 35-65% of total working capital, varying by industry type. Manufacturing businesses typically fall at the higher end of this range, distribution companies in the middle, and retail businesses vary widely based on seasonality and business model.

Consider a detailed example that shows the full calculation: Your agreed working capital target is $3 million, comprising accounts receivable of $1.2 million, inventory of $2.0 million, prepaid expenses of $150,000, minus accounts payable of $250,000 and accrued liabilities of $100,000.

At closing, your calculation shows working capital of $3.2 million, with inventory at $2.1 million. You expect an additional $200,000 payment under the working capital adjustment.

But the buyer’s team recalculates inventory at $1.85 million based on three adjustments:

• $120,000 additional obsolescence reserve for items with no sales in 12+ months
• $80,000 reduction for standard cost variances they argue were improperly capitalized
• $50,000 adjustment for consignment inventory they claim shouldn’t be included

This $250,000 inventory reduction drops your working capital to $2.95 million. Instead of receiving $200,000, you now owe $50,000 under the adjustment mechanism. The gross inventory dispute amounts to $250,000.

But resolving this dispute involves additional costs that sellers often underestimate:

• Legal fees defending inventory valuation: $15,000-50,000
• Accounting fees for methodology defense: $10,000-30,000
• Management time (40-80 hours at opportunity cost): $20,000-40,000
• Potential closing delays with associated interest and opportunity costs

The net financial impact may range from $135,000 to $205,000 depending on resolution approach—still significant, but materially different from the gross dispute amount. This reality affects whether fighting every dollar makes economic sense.

Common Valuation Methodology Disputes

FIFO Versus Weighted Average Costing

One of the most technical yet impactful inventory valuation disputes involves cost flow assumptions. If your company uses FIFO (First-In, First-Out) costing while the buyer’s accountants prefer weighted average, or vice versa, the same physical inventory can produce materially different values.

FIFO assumes older inventory is sold first, meaning your remaining inventory reflects more recent (often higher) costs. Weighted average blends all purchase costs, producing a smoothed value. In periods of rising costs, FIFO typically produces higher inventory values. In periods of falling costs, weighted average may produce higher values.

The magnitude of this difference depends on cost volatility and inventory turnover. For a business with $2 million in inventory and moderate cost inflation of 3-5% annually, the FIFO versus weighted average difference might range from $40,000 to $100,000—meaningful money in a transaction context. The actual variance for your business depends on your specific cost history and inventory composition.

The dispute arises when purchase agreements don’t clearly specify which methodology governs closing inventory valuation. Even when agreements reference “GAAP-consistent” methodology, GAAP permits both FIFO and weighted average, leaving room for interpretation.

Standard Cost Variance Treatment

Manufacturing companies using standard costing face additional complexity. Standard costs are predetermined costs assigned to products for planning and control purposes. Actual costs inevitably vary from standards, creating variances that must be allocated or absorbed.

At closing, buyers frequently challenge how standard cost variances have been treated. If favorable variances have been used to increase inventory values, buyers may argue this overstates true inventory cost. If unfavorable variances haven’t been fully allocated to inventory, buyers may claim inventory is overvalued. The technical accounting arguments can become complex, but the financial stakes are simple: variance treatment directly affects stated inventory value.

Generally accepted cost accounting principles require judgment about whether variances relate to production inefficiencies (which should be expensed) or normal cost fluctuations (which may be capitalized). This judgment creates legitimate disagreement space that sophisticated buyers exploit during closing negotiations.

Obsolescence Reserve Methodology

Perhaps no inventory issue generates more dispute than obsolescence reserves. These reserves reduce stated inventory value to reflect items that may not be saleable at full value—slow-moving stock, discontinued products, excess quantities, and technically obsolete items.

Your historical approach to obsolescence reserves reflected your operational judgment and, frankly, your tolerance for write-downs that reduce reported profits. Buyers approach obsolescence with fresh eyes and different incentives. They’ll scrutinize every SKU that hasn’t moved in periods they consider excessive—though what qualifies as “slow-moving” varies dramatically by industry.

Industry-specific obsolescence considerations:

• Manufacturing: Component obsolescence depends on product lifecycle. Aerospace parts may move slowly but remain valuable for decades, while consumer electronics components become obsolete within 18-24 months.
• Distribution: Inventory turnover expectations vary from 4-6 turns annually for industrial distribution to 12+ turns for consumer goods distribution.
• Retail: Seasonal merchandise follows different obsolescence patterns than staple goods. Fashion retail may consider items slow-moving after 60 days; hardware retail may accept 180+ day inventory.
• Food and beverage: Expiration dating creates absolute obsolescence thresholds regardless of demand patterns.

The typical pattern: A buyer’s team identifies $400,000 in inventory they consider questionable. Your existing reserves cover $150,000. They argue for an additional $250,000 reserve—reducing your inventory value and your proceeds by that amount. The negotiation that follows can be collegial or contentious, but it always matters financially.

The Physical Count Process

Count Timing and Procedures

The physical inventory count that establishes closing values is itself a potential dispute source. Key issues include:

Count timing: Ideally, counts occur at closing or within days of it. When counts occur weeks before closing, both parties must agree on “roll-forward” procedures that adjust the count for subsequent activity. These roll-forward calculations frequently generate disputes because they require agreement on how to handle receipts, shipments, returns, and adjustments during the gap period.

Count procedures: Who conducts the count? Are buyer representatives present? What happens when counters disagree? How are items in transit handled? What about goods on consignment or held at third-party locations? Each procedural question represents a potential disagreement.

Cutoff issues: Transactions frequently dispute which items are “in” versus “out” at the count moment. Inventory received but not yet processed, inventory shipped but not yet delivered, inventory returns in transit—cutoff questions can shift significant value.

Observation Rights and Dispute Escalation

Well-drafted purchase agreements specify observation rights that allow both parties to monitor the count process. These provisions matter because disputes that arise during counting are easier to resolve than disputes discovered afterward.

Observation rights typically include: the right to have representatives present during all counting activities, the right to perform test counts on a sample basis, the right to review count sheets and methodology documentation, and agreed procedures for handling count discrepancies above specified thresholds.

When observation rights are vague or absent, post-count disputes become more difficult to resolve. We’ve observed transactions where buyers challenged count accuracy weeks after closing, arguing that the seller’s procedures were inadequate. Clear observation protocols, documented at the time of counting, protect both parties.

Dispute escalation mechanisms should include:

• Threshold amounts that trigger formal dispute procedures (e.g., disputes under $25,000 resolved by parties directly)
• Timeline requirements for raising and responding to disputes
• Independent accountant provisions for unresolved disputes, including selection procedures and scope limitations
• Binding arbitration clauses for disputes the independent accountant cannot resolve
• Mediation options before proceeding to binding resolution

Important limitations of independent accountant resolution: While independent accountants provide neutral third-party review, this mechanism has limitations sellers should understand. Independent accountants typically split disputed amounts rather than making merit-based determinations on complex methodology questions. The process adds $30,000-100,000 in professional fees and can extend resolution by 60-120 days. In approximately 15-20% of cases (based on our observations), independent accountant processes reach deadlock requiring further escalation. The formal process may also damage post-closing relationships that matter for earn-outs or management transitions.

High-Risk Inventory Categories

Work-in-Process Valuation

For manufacturers, work-in-process (WIP) inventory presents unique valuation challenges. WIP includes labor and overhead allocations in addition to material costs. These allocations depend on cost accounting methodologies that vary between companies and that buyers frequently challenge.

Common WIP disputes include: appropriate labor rates for capitalization, overhead allocation bases and rates, completion percentage estimates for partially finished goods, and scrap and rework allowances. Because WIP valuation involves significant judgment, it attracts significant scrutiny—and significant disputes.

Size-segment considerations for WIP:

• Businesses with $2M-$5M revenue often lack sophisticated cost accounting systems, making WIP valuation more susceptible to challenge
• Mid-sized businesses ($5M-$15M) may have adequate systems but inconsistent application
• Larger businesses ($15M-$20M) typically have more defensible WIP methodologies but face scrutiny on allocation base choices

Consignment and Third-Party Holdings

Inventory held at customer locations, third-party warehouses, or consignment arrangements creates verification challenges. Buyers may question whether consigned inventory is actually present and saleable. They may challenge your right to include customer-held inventory in closing values. They may dispute the condition of inventory stored at third-party facilities.

Proactive sellers obtain confirmations from consignees and third-party holders before closing, demonstrating both existence and condition. Sellers who wait for buyers to raise questions often find themselves negotiating from a defensive position.

Slow-Moving and Excess Inventory

Every inventory includes items that move slowly or exist in quantities exceeding foreseeable demand. Buyers target these items for obsolescence reserves or outright exclusion from closing inventory.

The challenge: What qualifies as “slow-moving” or “excess”? The answer varies significantly by industry, product type, and business model. Below are general ranges based on industry practice, though specific thresholds vary by business model and should be validated against your own experience:

Your business may routinely carry two years of supply on certain critical components—a practice that makes operational sense but invites buyer challenge. Your seasonal business may show zero movement on items that will sell heavily in two months—items the buyer may flag as stagnant.

Establishing clear definitions before counting—ideally in the purchase agreement itself—prevents these subjective judgments from becoming post-closing disputes.

When Inventory Disputes Derail Transactions

Not every inventory dispute resolves successfully. Understanding failure modes helps sellers avoid them—though even well-prepared sellers sometimes encounter aggressive buyers or genuine methodology disagreements that complicate closing.

Case Study: The Unreconciled Perpetual Records

A manufacturing transaction in the $10-15 million range collapsed during closing inventory counts when the buyer’s team discovered a significant variance between perpetual inventory records and physical counts—exceeding 20%. The seller had not conducted a physical inventory in over a year and couldn’t explain the discrepancy. The buyer, concerned about broader financial control issues, walked away from the transaction.

Lesson: Perpetual-to-physical reconciliation is non-negotiable preparation.

Case Study: The Obsolescence Standoff

A distribution company reached purchase agreement with a strategic buyer. During closing, the buyer’s team identified substantial inventory they deemed obsolete—items the seller had carried for years and believed remained saleable. Neither party would compromise significantly. After weeks of negotiation, the transaction terminated. The seller eventually sold to a different buyer over a year later at a materially lower valuation.

Lesson: Addressing obvious obsolescence before marketing the business often produces better outcomes than defending it during closing.

Case Study: The Methodology Ambiguity

A retail transaction closed successfully but resulted in extended post-closing arbitration over inventory valuation methodology. The purchase agreement referenced “GAAP-consistent” valuation without specifying which GAAP-permitted method would govern. The parties spent substantial amounts on accounting and legal fees disputing the difference. The arbitrator split the difference, leaving both parties dissatisfied.

Lesson: Ambiguous methodology provisions cost more to litigate than to draft clearly.

Balancing perspective: While preparation typically improves dispute outcomes, we’ve also observed cases where well-prepared sellers faced unreasonable buyer demands and cases where less-prepared sellers achieved acceptable resolutions through strong deal terms or buyer reasonableness. Many factors beyond preparation quality affect outcomes.

Protective Frameworks for Sellers

Purchase Agreement Provisions

The most effective protection against inventory valuation disputes is a well-drafted purchase agreement. Critical provisions include:

Explicit methodology specification: Don’t rely on general GAAP references. Specify the exact cost flow assumption (FIFO, weighted average, specific identification), variance treatment, overhead allocation bases, and obsolescence reserve methodology that will govern closing calculations.

Clear inventory definitions: Define precisely what constitutes “inventory” for closing purposes. Address consignment goods, inventory in transit, customer-held inventory, and any categories that might generate dispute.

Count procedure requirements: Specify who conducts counts, what procedures apply, how discrepancies are handled, and what observation rights exist. The more detailed these provisions, the fewer issues arise during execution.

Dispute resolution mechanisms: Establish clear escalation procedures for inventory disagreements, including thresholds, timelines, mediation as an intermediate step, and ultimately, independent accountant resolution or binding arbitration for issues the parties cannot resolve directly. Understand that each escalation mechanism has costs and limitations.

Pre-Closing Preparation: Realistic Costs and Timelines

Sellers who prepare effectively for inventory determination tend to achieve better dispute resolution outcomes, though many factors beyond preparation affect final results. Understanding realistic preparation requirements helps you budget appropriately.

Realistic timeline assessment:

• Best case (3-4 weeks): Clean perpetual records, experienced staff, simple inventory, no major discrepancies found
• Typical case (5-8 weeks): Some record issues, need to train count staff, moderate discrepancies requiring investigation, vendor confirmations needed
• Complex case (10-16 weeks): Poor perpetual records, complex WIP accounting, multiple locations or significant third-party inventory, major discrepancies requiring system investigation

Plan to begin preparation 8-12 weeks before anticipated closing for typical middle-market businesses, with additional time if perpetual records are inconsistent or significant third-party inventory exists.

Full cost accounting for preparation:

Compare this preparation investment to typical dispute amounts ($50,000-$500,000) and the probability of disputes in your industry when making resource allocation decisions. For smaller transactions or when seller negotiation power is limited, extensive preparation may not be cost-effective.

Key preparation steps:

Reconcile perpetual to physical: Conduct your own physical inventory 8-12 weeks before anticipated closing. Identify and resolve discrepancies in advance rather than discovering them during closing.

Document your methodology: Prepare clear documentation explaining your cost accounting methods, obsolescence reserve calculations, and overhead allocation approaches. Include specific examples showing how costs flow through your system and industry context for your choices. Note: thorough documentation may actually generate more specific challenges from sophisticated buyers rather than reducing scrutiny. Focus on demonstrating compliance with GAAP and industry norms rather than expecting buyer agreement with your specific choices.

Address obvious problems proactively: Inventory you know is problematic may be worth writing off before closing rather than defending during negotiations. Calculate the trade-off: certain loss now versus uncertain dispute later, including the cost of defending your position.

Prepare existence evidence: For inventory at third-party locations, obtain current confirmations. For high-value items, prepare supporting documentation including photographs, serial numbers, and condition assessments.

Engage cost accounting expertise if needed: If your internal accounting team lacks depth in cost accounting, consider engaging outside expertise to review and document your methodology before buyer scrutiny begins.

Managing the Count Process

During the actual count, active seller participation improves outcomes. Best practices include:

Staff the count adequately: Ensure your team includes people who understand both the inventory and your cost accounting. Sending warehouse staff alone, without financial personnel, invites methodology disputes.

Document everything: Photograph count conditions. Retain copies of all count sheets. Document any buyer comments or concerns raised during counting. This documentation proves invaluable if post-closing disputes arise.

Resolve issues in real-time when possible: When counters disagree or questions arise, address them immediately rather than deferring to post-count negotiation. Real-time resolution with both parties present typically produces better outcomes than after-the-fact arguments.

Control the narrative professionally: Present your inventory accurately without overselling. Explain why slow-moving items remain valuable given your specific industry context. Demonstrate your obsolescence reserve adequacy with supporting data.

Alternative Resolution Strategies

Before engaging in lengthy inventory disputes, consider whether your specific situation and priorities favor alternative approaches:

Immediate Concession Strategy

When superior: Small disputes (under $50,000), tight closing timeline, strong overall deal terms, seller has weak documentation, preserving buyer relationship matters for earn-out or transition

When inferior: Large disputes, seller has strong documentation, buyer appears unreasonable, precedent effects for other closing adjustments

Economic comparison: Immediate concession costs the dispute amount but saves $25,000-75,000 in legal/accounting fees, 30-90 days of delay, and management distraction. For disputes under $75,000, concession often produces better net outcomes.

Escrow or Holdback Mechanism

When superior: Ongoing business relationship post-closing, uncertain outcomes where neither party has clear position, disputes arising late in process, seller needs to close on schedule

When inferior: Seller needs immediate liquidity, buyer relationship irrelevant post-closing, seller has strong position that would likely prevail in arbitration

Key tradeoff: Defers resolution but allows closing to proceed. Typical escrow terms hold disputed amount plus 10-25% for 90-180 days pending resolution.

Independent Accountant Resolution

When superior: Technical methodology disputes where both parties have defensible GAAP-compliant positions, disputes with clear factual questions, parties want neutral resolution

When inferior: One party clearly wrong (likely to lose anyway), relationship preservation important, disputes involve significant judgment calls where accountants typically split differences

Cost-benefit: Adds $30,000-100,000 in professional fees and 60-120 days to resolution. Most appropriate for disputes exceeding $150,000 where seller has reasonable confidence in their position.

The Strategic Dimension of Inventory Valuation

Inventory valuation in M&A transactions isn’t purely a technical accounting exercise—it’s a negotiation with significant strategic dimensions. Sellers who approach it mechanically, expecting that correct accounting will produce correct outcomes, often underestimate the negotiation dynamics.

Strategic considerations include:

Timing your transaction: Inventory positions vary throughout the year. Manufacturing businesses may want to close when inventory is lean. Retail businesses may prefer post-season timing. Understanding your optimal inventory position affects transaction timing.

Assessing your power realistically: Preparation creates negotiating power, but seller power depends on many factors: number of interested buyers, time pressure, transaction certainty value, and overall deal terms. Strong documentation helps but cannot overcome weak power.

Understanding buyer motivations: Strategic buyers may value inventory differently than financial buyers. Strategic buyers acquiring for market position may accept inventory as operational asset. Financial buyers focused on returns may scrutinize every dollar. Understanding your buyer’s perspective helps you anticipate which issues they’ll prioritize.

Managing the psychological dynamic: Buyers often challenge inventory aggressively early in the closing process, expecting sellers to concede some amount. Sellers who understand this dynamic can respond strategically—either fighting where they have strong positions or conceding strategically where they don’t—rather than reacting emotionally.

Actionable Takeaways

Negotiate methodology before signing. The purchase agreement should specify exact costing methods, obsolescence reserve approaches, and overhead allocation bases—not just general GAAP references. Every ambiguity creates dispute opportunity.

Conduct pre-closing inventory reconciliation with realistic timelines. Begin 8-12 weeks before anticipated closing for typical conditions. Budget appropriately: $67,000-175,000 in total costs including management time and potential disruption for mid-market manufacturing and distribution businesses.

Document your cost accounting thoroughly—but with realistic expectations. Prepare clear explanations of your inventory valuation methods, with supporting calculations for reserves and allocations. Understand that good documentation may invite more specific challenges rather than reducing scrutiny. Focus on demonstrating GAAP compliance and industry-norm consistency.

Negotiate dispute resolution mechanisms carefully. Ensure the purchase agreement specifies count procedures, observation rights, and dispute escalation mechanisms including mediation, independent accountant provisions, and arbitration clauses. Understand the costs and limitations of each mechanism.

Consider strategic concessions. For disputes under $75,000, immediate concession may produce better net outcomes than extended negotiation given legal, accounting, and opportunity costs. Calculate the trade-off for your specific situation.

Evaluate alternative resolution approaches. Before committing to fight every dollar, consider whether concession, escrow, or structured resolution mechanisms better serve your priorities and timeline.

Staff the closing count strategically. Include both operational personnel who know the inventory and financial personnel who understand the cost accounting. Neither alone is sufficient.

Understand that preparation improves but doesn’t guarantee outcomes. Many factors affect dispute resolution including buyer aggressiveness, market conditions, deal power, and negotiation dynamics. Prepare thoroughly while maintaining realistic expectations.

Conclusion

Inventory valuation disputes represent one of the most financially significant—yet frequently underestimated—aspects of M&A closing mechanics. The physical count that determines your final inventory value isn’t merely an administrative exercise; it’s a negotiation that can shift significant value between you and your buyer.

Sellers who approach inventory determination proactively, with clear purchase agreement provisions, thorough pre-closing preparation, and active participation in the count process, tend to achieve better outcomes than those who treat it as a routine formality. But even well-prepared sellers sometimes face aggressive buyers, genuine methodology disagreements, or challenging market conditions. Understanding both how to prepare effectively and when alternative resolution strategies may serve you better creates the best chance of protecting your transaction proceeds while managing costs and timeline.

The time to address potential inventory disputes is before you sign the purchase agreement—not when the buyer’s team is standing in your warehouse questioning your obsolescence reserves. The examples of failed transactions we’ve discussed underscore the stakes: inventory disputes can delay closings, reduce proceeds, and in some cases, collapse deals entirely. But understanding realistic costs, timelines, and the full range of resolution options helps you make informed decisions rather than fighting reflexively.

At Exit Ready Advisors, we help business owners anticipate and direct these closing mechanics long before they become contentious. Understanding how inventory determination works, where disputes typically arise, and how to weigh preparation investment against likely outcomes transforms a potential value leak into a managed process with more predictable results.