The buyer is proposing a cash-free, debt-free deal but wants to exclude our working capital surplus from the final purchase price, claiming it is required to run the business. How do we establish a fair net working capital peg that does not force us to leave excess cash on the table?

Question

Tyler Smith · Accepted Answer

The net working capital peg is one of the most common places for late-stage deal disputes. Buyers want a high peg to ensure they inherit a business flush with cash and inventory, while sellers want a lower peg to maximize the cash they can sweep at close.

To establish a fair peg, you must use a rigorous, data-driven methodology. Calculate your average net working capital over the trailing twelve months. This historical average smooths out seasonal fluctuations and provides a realistic baseline of the capital required to operate the business in its normal course.

If you have recently integrated AI and automated your operations, your working capital needs may have decreased. For example, your accounts receivable collection cycles might be faster, or your inventory management might be more efficient. Use your weekly scorecard data and historical cash flow metrics to prove to the buyer that your business now requires less working capital to run than it did a year ago.

Do not let the buyer set an arbitrary peg based on a single point in time or a generic industry average. Insist on a trailing twelve-month average that reflects your actual, optimized operational efficiency, and ensure that any working capital surplus above this peg is paid to you as an adjustment to the purchase price at close.