We understand that buyers look at Net Working Capital adjustments at the close, but we do not know how our day-to-day operations impact this. How do we manage our inventory and receivables during our exit runway to avoid giving back cash to the buyer at the closing table?

Question

Tyler Smith · Accepted Answer

Net Working Capital is a critical but often misunderstood component of a business transaction. Buyers look at your historical working capital to establish a peg, which is the average amount of current assets minus current liabilities required to run the business. If your working capital is artificially high or low at the close, it results in a dollar-for-dollar adjustment to the purchase price. To prevent a buyer from clawing back cash at the closing table, you must build strict operational discipline into your working capital cycle on your exit runway. Start by tightening your accounts receivable processes. Use your weekly Scorecard to track your average days sales outstanding and systematically follow up on late payments to keep this number low and consistent. On the inventory side, eliminate obsolete stock and optimize your supply chain so you are not holding excess capital in your warehouse. Manage your accounts payable prudently, paying vendors on standard terms rather than rushing payments. By standardizing these cycles, you show a predictable, efficient cash conversion path. When your working capital matches your historical baseline, you eliminate the risk of late-stage adjustments. This operational discipline proves to the buyer that your cash flow is predictable and that your management team knows how to run an efficient, high-performing balance sheet.