⚠️ Red Flag Case Study: Stale Steel and Phantom Margins

~ Certified Business Appraiser

An equipment distributor was under contract at $1.6M based on $300K in “cash flow.”

But: ❌ $200K in obsolete inventory was included at full value
❌ Gross margins were declining—under 18%
❌ Owner did sales, sourcing, and account management
❌ 2 largest customers = 58% of revenue

✅ Adjusted FCF: ~$155K
✅ Normalized value: ~$925K

📌 Cash flow pays the loan—not pallets of unsold pipe.