The buyer is trying to set our net working capital target based on our highest cash-needs month of the year rather than a true average, effectively forcing us to leave our operating cash in the business. How do we use our weekly Scorecard history to negotiate a fair working capital target?

Question

Tyler Smith · Accepted Answer

During deal negotiations, buyers will try to set an artificially high net working capital target, or peg, which forces you to leave a substantial amount of cash in the business at close. If your business experiences seasonal spikes in inventory or accounts receivable, the buyer may try to use a peak month as the baseline rather than a true twelve-month average.

To defend your cash, you must present a granular view of your working capital requirements. Do not rely on monthly or quarterly financial statements that hide the weekly operational reality. Instead, pull your weekly Scorecard history to demonstrate your actual cash conversion cycle throughout the year.

By showing the exact correlation between your operational activities, inventory levels, and accounts receivable collections, you can prove that your average working capital needs are much lower than their proposed peak target.

Use this data to negotiate a seasonal working capital target or a rolling twelve-month average that reflects your true operational efficiency. If you have recently streamlined your billing processes using automated workflows, show how this has permanently reduced your working capital requirements.

By proving that your cash conversion cycle is shorter and more predictable, you can successfully lower the working capital peg. This ensures you get to pocket more of your hard-earned cash at the closing table.