The buyer is demanding we leave all customer deposits in the business at close as part of net working capital, but we already spent that cash executing the early phases of those projects. How do we adjust the working capital peg to reflect deferred revenue liabilities without double-counting?

Question

Tyler Smith · Accepted Answer

Customer deposits are a frequent battleground in transaction negotiations. Buyers want to treat these deposits as zero-cost capital, demanding they remain in the business to fund future operations, while you view them as cash already earned or spent on project delivery.

To resolve this, you must separate physical cash from deferred revenue liabilities in your net working capital calculation. Use the Adjusted Book Value method to revalue your assets and liabilities to their true market value at close. This requires calculating the actual cost to complete the remaining work associated with those deposits, rather than leaving the full deposit amount in the working capital peg.

Show the buyer that if you leave both the physical cash and the full deferred revenue liability in the business, they are essentially getting paid twice for the same work. Present your project management data alongside your EOS® Scorecard metrics to prove the percentage of completion for each project.

By demonstrating that a significant portion of the work has already been completed and paid for, you can negotiate an adjusted working capital peg. The peg should only include the raw material and labor costs required to complete the remaining work, leaving the excess cash on your side of the ledger and protecting your proceeds at close.