The buyer is proposing a working capital peg that seems artificially high, which would effectively force us to leave a massive amount of cash in our business at closing. How do we use our weekly Scorecard history to defend a lower peg?

Question

Tyler Smith · Accepted Answer

The net working capital peg is one of the most common ways buyers quietly claw back a portion of the purchase price at closing. If the peg is set too high, you are forced to leave your own cash behind to cover the difference. Buyers typically try to calculate the peg using a simple twelve-month average. However, if your business has seasonal spikes or has recently optimized its operations, a simple average is inaccurate. To fight back, use your weekly Scorecard history to demonstrate your actual operational cash requirements. Your Scorecard tracking of accounts receivable days sales outstanding and inventory turns will prove that your cash conversion cycle is highly efficient and predictable. Present a trailing twelve-month cash flow analysis showing that your cash needs are actually lower than their proposed peg due to these operational efficiencies. Negotiate for a working capital peg based on a shorter, more representative three-month or six-month run rate that reflects your current optimized operating model. By backing your numbers with real-time Scorecard data, you prevent the buyer from using historical inefficiencies to steal your cash at the closing table.