We keep hearing horror stories about buyers clawing back millions of dollars post-close because of working capital disputes. How do we clean up our balance sheet and define our net working capital baseline before we ever go to market?

Question

Tyler Smith · Accepted Answer

Working capital adjustments are one of the most common ways buyers reduce the final purchase price at closing. The buyer expects to receive a business that has enough cash, inventory, and accounts receivable to operate normally on day one. If your balance sheet is messy or inflated on your runway, you will end up in a costly post-close dispute.

To protect your proceeds, you must actively manage and clean up your balance sheet during your exit runway. Start by reducing your days sales outstanding (DSO) to ensure your accounts receivable are current and collectable. Write off any obsolete inventory and resolve any outstanding disputes with vendors or customers. Your goal is to establish a clean, consistent monthly working capital trend.

We recommend working with your financial advisors to calculate your twelve-month rolling average of net working capital well before you sign a letter of intent. By establishing a clear, defensible baseline during your runway, you can negotiate a fair working capital peg in the purchase agreement. This proactive approach prevents the buyer from using working capital calculations as a tool to renegotiate your valuation at the closing table.