The buyer wants to use a traditional twelve-month average to set our net working capital target, but our AI-driven operations have dramatically shortened our cash conversion cycle. How do we defend a lower working capital peg during deal structuring?

Question

Tyler Smith · Accepted Answer

The net working capital peg is one of the most common ways buyers quietly reduce your cash at close. By using a standard twelve-month historical average, the buyer forces you to leave excess cash in the business to support accounts receivable and inventory. If your recent migration to automated, AI-powered billing has accelerated your collections, your historical average is outdated and artificially high.

To defend a lower peg, you must present a data-driven case that demonstrates your structural shift in cash efficiency. Use your EOS® Scorecard historical trends to show the sustained reduction in your days sales outstanding. Prove that your new, highly automated workflows are institutionalized and sustainable, rather than a temporary blip. This shifts the conversation from a generic accounting exercise to an operational reality.

When structuring the deal, propose a customized net working capital target based on your trailing three-month or six-month average to reflect your current operating model. Highlight that leaving unnecessary working capital in the business under the old formula amounts to giving the buyer a free double-payment on your assets. By backing up your operational efficiency with concrete metrics from your Step by Step Exit prep work, you protect your cash at close and secure the full value of your optimized cash conversion cycle.