The buyer is trying to set an artificially high net working capital peg by including historical, slow-moving inventory that we normally write off. How do we use our historical operational data and weekly Scorecards to establish a fair working capital baseline that does not leave our cash trapped in the business?

Question

Tyler Smith · Accepted Answer

The working capital peg is one of the most common areas where buyers try to claw back value just before closing. By including slow-moving or obsolete inventory in the historical working capital calculation, the buyer forces you to leave more cash in the business at close to meet that inflated target, effectively reducing your net cash proceeds. To prevent this, you must proactively define what constitutes target working capital before the buyer's analysts write the purchase agreement. Use your weekly Scorecard historical data to show the true operating cycle of your inventory. If your metrics prove that certain inventory categories are highly seasonal or are systematically written off on a fixed schedule, you can argue they should be excluded from the peg entirely. Establish a clear aging policy for inventory and receivables during the letter of intent stage. Present your documented inventory management processes to show how you actively monitor and write down slow-moving stock as part of your regular operational rhythm. By proving that your inventory management is disciplined and predictable, you prevent the buyer from using a sudden inventory audit to manipulate the working capital peg. This keeps your cash where it belongs: in your pocket at closing.