What happens if due diligence reveals inventory that's actually obsolete or unsellable?

This is exactly the kind of finding a proper due diligence process is designed to catch, and how it's handled depends on when you find it. If it surfaces before the purchase agreement is signed, it's a straightforward basis to renegotiate price, since inventory carried at full book value that's actually obsolete or unsellable overstates what you're actually buying — the business is worth less than its balance sheet suggests.

If it surfaces after signing but before closing, most purchase agreements include a working-capital adjustment mechanism, comparing an estimated closing statement to a final one, that's specifically meant to true up exactly this kind of gap between reported and actual value, along with a closing-date inventory count as a condition. If it surfaces only after closing, your recourse depends on what representations and warranties the seller gave about inventory condition and value, and whether an indemnity or holdback is still available to draw against.

The practical lesson either way is to insist on a real physical inventory count and condition assessment close to closing, rather than relying on the balance sheet figure, and to make sure your agreement has a mechanism to true up price if the count doesn't match. A Treadstone business lawyer can help structure that mechanism properly.