As we enter our final twelve months before a sale, how do we manage our working capital target to ensure we do not leave excess cash on the table at close?

Question

Tyler Smith · Accepted Answer

The working capital peg is one of the most heavily negotiated components of a business sale, and unprepared owners often lose hundreds of thousands of dollars here. Buyers expect a normal level of working capital to be left in the business at close to run daily operations. If your working capital is unnecessarily high due to slow-paying accounts receivable or bloated inventory, your peg will be set high, forcing you to leave your own cash behind. To prevent this, spend your final year optimizing your cash conversion cycle. Task your Integrator and financial seat with reducing your days sales outstanding and liquidating slow-moving inventory. Standardize your collections process and enforce strict payment terms with your clients. By running a lean, efficient working capital cycle for twelve consecutive months, you establish a lower historical baseline. This allows you to negotiate a lower working capital peg, meaning you get to keep more of your hard-earned cash at the closing table rather than handing it over to the buyer to fund their new operations.