Our business has highly seasonal revenue swings that require massive cash reserves in Q3. How do we prove our cash requirements to a buyer so they do not set an artificially high working capital peg that drains our proceeds at closing?

Question

Tyler Smith · Accepted Answer

Managing seasonal working capital swings is a critical negotiation point that can cost you millions at closing if handled poorly. Buyers want to ensure the business has enough liquidity to run smoothly post-close, but they will often try to set an artificially high working capital peg based on your peak operational months, forcing you to leave excessive cash in the business.

To defend your position, you must present a detailed, data-driven analysis of your cash flow cycles. Do not rely on simple annual averages. Instead, use a twelve-month rolling average of your net working capital to show the natural peaks and valleys of your business.

- Map out your inventory build-up and accounts receivable collection cycles.
- Show how your working capital requirements align with seasonal revenue.
- Prove that your cash reserves are temporary and return to normal levels.

By presenting clean, historical data, you demonstrate that your peak cash requirements are predictable and manageable. This allows you to negotiate a fair, seasonal working capital peg that protects your proceeds at closing while ensuring the buyer has the liquidity needed to run the operations.