If the LOI is silent, you do not have a peg. You have an argument scheduled for week ten. Put the definition in the letter, not in a hallway.
What does a manufacturing peg have to name that a retailer peg can skip?
Raw, WIP, and finished as separate piles. Consigned material. Customer-owned tooling that is sitting on your floor but is not yours. Slow or disputed WIP. How you value a job that is 60% complete on a time-and-material ticket. How you treat vendor-managed inventory.
Census CBP 2023 counted 284,452 plants, 68.4% under twenty employees (Source: Census CBP). Small shops often run inventory on tribal knowledge. Tribal knowledge is not a peg.
| Item | Usually in the peg | Usually out or separately defined |
|---|---|---|
| Trade AR, current | In, with an aging rule | Related-party AR without a collection story |
| Raw / WIP / finished | In, with a costing rule | Customer-owned fixtures and bailment |
| Trade AP | In | Accrued owner bonuses you already added back |
| Cash | Out (cash-free) | A “leave some cash” handshake |
| Debt / leases called debt | Out (debt-free) | Operating leases the parties forgot to classify |
| Consigned / VMI | Written rule | Silence, which becomes a fight |
BizBuySell’s 2025 manufacturing median close ran 223 days (Source: BizBuySell). That calendar is long enough for inventory to drift. A peg without a measurement date and a true-up mechanic is decoration.
How does a thin peg steal the multiple you just celebrated?
How much a manufacturing business is worth is a size-band question. The peg is the cash question. If the buyer needed $800k of normalized NWC and you deliver $520k, the difference usually comes back off the wire. Your 2.75x headline just moved.
SBA 7(a) still has to fund working capital inside a $5 million box and a 10% injection (Source: SBA). Lenders read the peg. A CIM that ignores it will be rewritten.
When should the peg show up in the process?
In the letter of intent, not after exclusivity. Use the owner deal page and 7(a) packaging before anyone grants a quiet period. The FAQ index keeps the peg noun here so a hallway “normalized” does not replace a definition.
Concentration and backlog still matter: receivables piled into one OEM are peg risk. A Phase I still follows All Appropriate Inquiries when the dirt is wet (Source: EPA / 40 C.F.R. Part 312). Environmental spend is not a substitute for a peg, and a peg is not a substitute for a Phase I.
How do seasonal shops set a peg that is not a January accident?
Use a series, not a snapshot. A thirteen-month NWC walk shows the season. A single December 31 number on a shop that builds inventory for a spring OEM release will either donate cash or pick a fight. Write the measurement date to the season, or write an average that both sides can recompute.
Job shops with lumpy WIP need a job-level listing, not a single inventory total. A $400k WIP number that is three late jobs and a dispute is not the same as a $400k WIP number that is proven, releasable work. The peg definition has to say how you treat each pile.
If the seller accelerates collections and delays payables in the exclusive, the true-up is supposed to catch it. If the LOI forgot the true-up, the acceleration is a gift. Put the mechanic in the letter. Put the aging rule next to it.
Consigned resin, customer-owned fixtures, and vendor-managed fasteners do not become yours because they sit in your cage. Write them out. Photograph the tags. The first physical inventory should not be the moment someone discovers a bailment.
A peg that assumes “normalized” without a formula is how two honest people spend week twelve yelling. Formula first. Adjectives last.
What should you bring if the argument is already about “enough inventory”?
A thirteen-month NWC series. An aging. A WIP listing by job. A written costing method. A list of consigned and customer-owned items. The LOI language, if any. Whether you already agreed to “normalized” without defining it.
A peg is a definition you can recompute, not a mood about inventory. If two CPAs cannot independently land on the same number from the same rules, the peg is not finished. Finish it in the letter. Then let the true-up do its quiet job. Silence is how cash leaves after the handshake. The owner page writes the mechanic this FAQ only names.
Jason Taken is a business broker. He will help you write a definition a lender can read. He will not invent a dollar peg from a blog. Put the measurement date and the costing rule in the same paragraph as the dollar target. A target without those two sentences is still a hallway number.
If the letter is silent, you scheduled an argument for week ten. Write the peg before anyone grants exclusivity.
Educational information only. Confirm the mechanic with counsel and the CPA. After the owner URL, use the intro call.