- · Buyer diligence teams routinely discover balance sheet problems that reduce sale proceeds by 5–15% of agreed enterprise value through working capital adjustments and purchase price clawbacks.
- · The three most consequential items are obsolete inventory, undocumented intercompany loans, and an improperly anchored working capital peg.
- · A structured 18–36 month preparation period addresses all three before a buyer's accountants do it for you.
- · Sellers who complete this work avoid CHF 300K–1.2M in post-closing disputes and present as operationally mature, which supports a stronger valuation multiple.
Swiss SME owners preparing for a sale tend to focus their energy on two numbers: EBITDA and the market multiple applied to it. Both matter. Neither is the whole picture.
What many sellers discover too late is that the agreed enterprise value and the actual closing proceeds are not the same figure. Between a signed term sheet and a funded closing sits a diligence process staffed by accountants who are paid, in part, to find balance sheet problems. When they find them, those problems become purchase price adjustments, working capital shortfalls, or post-closing clawbacks. The difference between what a seller expected and what arrived in the bank account can range from 5% to 15% of enterprise value, according to market observation.
The good news is that this outcome is largely preventable. The discipline required is not exotic. It is methodical, and it starts with three balance sheet items that receive the most attention in diligence: inventory quality, intercompany loan structure, and working capital normalization.
For product companies, inventory is typically the largest and least-managed working capital asset on the balance sheet. Most founders mentally assign inventory a carrying cost roughly equivalent to their cost of capital, somewhere around 7–10% annually. That figure significantly understates reality.
According to Glacier Lake Partners' analysis of inventory management and working capital optimization for product-based middle-market companies, the true annual carrying cost of inventory runs 20–30% of inventory value when all components are counted: capital cost, warehouse and storage, insurance, inventory management labour, obsolescence risk, shrinkage, and handling. A company carrying CHF 4M of inventory at a 25% carrying rate spends CHF 1M per year to hold that stock, whether or not anyone acknowledges it on a management report.
In a sale process, buyers conduct an aging analysis that stratifies inventory by days on hand, typically across four bands: 0–90 days, 90–180 days, 180–365 days, and 365 days and above. Inventory with no sales activity for 18 or more months attracts write-down assumptions of 50–80%. Most Swiss SMEs carry obsolete inventory at full book value for years, often because the write-down would visibly compress gross margin in management accounts. The buyer's accountants find it anyway, apply the write-down, and deduct the result from the purchase price through a working capital adjustment. The seller loses the full amount. A typical middle-market diligence process surfaces CHF 150K–500K of inventory that should have been written down before the market process began.
The corrective process starts with an inventory aging report at least 36 months before a planned exit. Any SKU with no sales activity in 12 or more months goes onto a watch list. Items with 18 or more months of no activity become candidates for write-down or disposal. Items at 24 months or beyond are written off. This is not aggressive accounting; it is the accounting that a buyer will impose through a price reduction if the seller does not do it first.
The same source notes that manufacturers with formal inventory classification and reorder discipline, using an ABC framework where the top 20% of SKUs by gross margin receive active safety stock and reorder management, carry 22% less inventory as a percentage of revenue and achieve 15% higher inventory turns compared to peers at equivalent scale who do not apply the same discipline. The C-item rationalization alone, addressing the bottom half of SKUs that drive roughly 5% of revenue, commonly reduces carrying costs by 8–15% without meaningful revenue impact.
The metric buyers use to benchmark inventory efficiency against industry peers is Days Inventory Outstanding (DIO), calculated as ending inventory divided by cost of goods sold, multiplied by 365. Median DIO for specialty distributors runs 35–55 days; for specialty manufacturers, 55–85 days. A seller whose DIO sits materially above the peer median will face arguments for a lower working capital peg and a price reduction. A seller with a clean 24-month aging history showing stable, normalized inventory levels gives the buyer's accountants very little to work with.
Intercompany loans, meaning loans between a holding company and an operating subsidiary or between a founder and the business, tend to accumulate quietly. They are created by accounting entries, priced by historical habit, rolled over without formal review, and rarely documented to the standard a sale process demands.
In a transaction, these balances create three distinct problems. The first is ambiguity: a buyer cannot easily determine whether a shareholder loan represents true debt, which reduces enterprise value dollar-for-dollar, or equity capital that has simply been mis-characterized on the balance sheet. The second is confusion about net asset value: a CHF 500K loan from the founder to the company may be treated as a closing-day liability that reduces proceeds, or it may not, depending on how it is documented and whether the seller has thought through the implications. The third is tax risk: under Swiss transfer pricing rules, intercompany loans lacking documentation of a market-competitive interest rate can trigger imputed interest assessments.
FTI Treasury's analysis of intercompany loan documentation and compliance gaps in due diligence confirms that these gaps are created not by intent but by process neglect, and that they reliably surface at sale, generating disputes over classification.
Glacier Lake Partners' review of debt-like items in M&A makes the practical consequence explicit: shareholder loans, deferred compensation, accrued bonuses, and customer deposits function as liabilities and reduce purchase price on a dollar-for-dollar basis, even when they are not bank debt. The definition of indebtedness in a purchase agreement is a negotiated term, but the cleaner path is to resolve these items before the negotiation begins.
The resolution process typically spans 12–24 months before a planned market entry. The first step is a full audit of all intercompany balances, separating shareholder loans from trade payables and operating liabilities, and reconstructing terms from accounting records and board minutes where documentation is incomplete. The second step is formalizing every shareholder loan with a written agreement specifying principal, interest rate, payment schedule, and subordination provisions. The third step is settling balances before the process opens, through repayment, conversion to equity capital, netting across group entities, or a non-cash dividend. Each method carries different tax implications under Swiss law, and the choice belongs with the company's tax advisor, not with the transaction documents.
Working capital adjustments are present in more than 90% of private-company acquisitions, according to the SRS Acquiom 2026 Working Capital PPA Study, which analyzed over 1,500 transactions totalling more than USD 385 billion, as cited by Adaptive Capital Partners in their review of working capital adjustments in M&A. Yet many first-time sellers encounter the mechanics for the first time after signing.
The structure is straightforward. A buyer agrees to pay CHF 5M for a business with a negotiated working capital peg of CHF 800K, meaning the seller has agreed to deliver CHF 800K of net working capital (current assets minus current liabilities) at closing. At closing, the buyer's accountants measure actual net working capital at CHF 720K. The CHF 80K shortfall is deducted from the closing payment. The seller receives CHF 4.92M. That CHF 80K was recoverable with preparation.
The peg is typically calculated from a trailing 12-month average of the company's monthly net working capital. For seasonal businesses, this creates a timing problem. A company that closes a transaction in November, when inventory is low and receivables are depressed, will show a closing-day working capital figure below the full-year average that anchored the peg. The result is a downward price adjustment. Depending on the amplitude of the seasonal swing, that difference can reach CHF 300K–1M.
Adaptive Capital Partners' analysis frames the arithmetic simply: every dollar of working capital below the target is a dollar out of the seller's pocket. Every dollar above is added to the proceeds.
The preparation process begins with establishing a 24-month monthly working capital tracking system no later than 30 months before a planned exit. The goal is to identify seasonal patterns, normalize non-recurring items such as large customer deposits or one-time inventory builds, and model the peg under different transaction timing scenarios before entering a negotiation. A seller who arrives at the letter of intent stage with 24 months of clean working capital history and a clear understanding of seasonal patterns is in a materially stronger position to negotiate the peg formula, the lookback period, and the closing timing.
As Kubera Equity notes in their guide to value maximization for Swiss SMEs, buyers pay premiums for businesses that present with financial transparency, documented processes, and resolved balance sheet ambiguity. A 24–36 month preparation period is the operational window in which that presentation is built.
Taken individually, each of these three items, inventory quality, intercompany loan resolution, and working capital normalization, represents a manageable operational project. Taken together, neglecting all three before entering a sale process creates the conditions for CHF 300K–1.2M in value erosion through purchase price adjustments and post-closing disputes.
The preparation period is not primarily a financial exercise. It is a signal. A buyer's diligence team reading clean 24-month aging reports, formally documented intercompany agreements, and a stable working capital history encounters a business that has been run with institutional discipline. That perception reduces diligence risk, accelerates closing confidence, and supports the case for a higher valuation multiple.
The balance sheet is not background paperwork. For a seller, it is the foundation on which the closing price is ultimately settled.
This post is a market observation prepared for informational purposes. It does not constitute financial, tax, or legal advice. Readers considering a sale or succession process are encouraged to engage qualified advisors in their specific jurisdiction.
