I’m in negotiations on a small business. It’s an ecommerce business, does approx $200k/yr in “SDE” (effectively cash-basis net income, adjusted for certain things), for sale for $550k including $100k of inventory. I’ve gone through due diligence and the books all check out, but we’ve identified a road block.

The company currently has $250k of inventory, and the seller is asking me to pay dollar for dollar on the cost. However, $150k of the $250k is extremely slow moving, obsolete, or just plain garbage. The other $100k turns over every 2-3 months so no issue there.

I’m proposing to do a consignment earn-out- I’ll pay for the old inventory as it sells, if ever. I will be using a 3PL with good reports, so will be able to verify on a monthly basis what still remains in inventory. Although, most of the junk I’ll just have to store in my basement in order to avoid storage fees. We’re talking 1,000+ units of something that sold 12 units last year, for example. All in, there are probably about 9,000 units that are slow moving, out of 16,000 units total.

She’s pushing back. It’s probably going to kill the deal as I’m definitely not paying $150k for garbage.

But wanted to solicit opinions- what have others done in this scenario? Any other interesting ways to handle it?

Most is just slow moving, but others are actually obsolete and won’t sell except perhaps below cost.