We have heard that disputes over the working capital peg can blow up a transaction at the closing table. How do we prepare our financial operations to defend our working capital calculation?

Question

Tyler Smith · Accepted Answer

Working capital disputes are one of the most common ways deals lose value in the final thirty days before closing. A buyer expects to receive a normalized level of working capital to run the company on day one without having to inject fresh equity. If your balance sheet swings wildly from month to month, the buyer will set an artificially high working capital peg based on your highest peak, effectively forcing you to leave your own cash behind.

To protect your proceeds, you must clean up your working capital mechanics at least eighteen to twenty-four months before marketing the business:

- Eliminate balance sheet noise by aggressively reconciling accounts receivable and accounts payable on a strict thirty-day cycle.
- Establish clear collection disciplines on your weekly Scorecard. Track Days Sales Outstanding (DSO) and enforce immediate write-offs for uncollectible aging balances rather than letting them linger as phantom assets.
- Audit your inventory turnover. Write off obsolete, dead, or slow-moving stock well before a Quality of Earnings audit flags it as impaired.
- Smooth out lumpy vendor prepayments and annual subscription expenses into monthly accruals so your trailing twelve-month working capital run rate remains stable.

When your balance sheet is predictable and your working capital metrics are consistently tracked in your weekly Level 10 Meeting, you take away the buyer's leverage to adjust the purchase price downward at closing.