The buyer is trying to set our net working capital target using a simple trailing twelve-month average, but this completely ignores the fact that we collect cash upfront and pay our suppliers on net-sixty terms. How do we defend our true working capital needs to prevent the buyer from clawing back our cash at close?

Question

Tyler Smith · Accepted Answer

The working capital peg is one of the most common places where buyers try to claw back cash at the closing table. If you collect payments from your clients upfront but pay your suppliers on deferred terms, a simple trailing twelve-month average will artificially inflate your net working capital target.

To protect your cash, you must present a highly detailed, daily cash conversion cycle analysis rather than relying on monthly balance sheet averages. Show the buyer how cash actually flows through your operating system.

Use your weekly Scorecard metrics to prove the stability of your collections and payables. If your business regularly runs on a negative working capital cycle, you must defend this as a core operational efficiency that you created, not a cash cushion that belongs to the buyer.

Negotiate to exclude excess cash from the working capital calculation entirely. Demand that the definitive purchase agreement accounts for your specific seasonal cash peaks and valleys.

By proving that your working capital efficiency is a direct result of your documented cash-flow processes, you can force the buyer to accept a lower peg, ensuring you walk away with your hard-earned cash at close.