Our leadership team runs on EOS and we have driven our inventory levels down significantly, but the buyer's working capital peg is based on a twelve-month historical average. How do we argue for an adjusted target?

Question

Tyler Smith · Accepted Answer

A standard twelve-month historical average for your net working capital peg will penalize you if you have recently streamlined your operations. If your EOS Rocks have focused on reducing inventory, collecting receivables faster, and optimizing payables, your actual working capital needs are permanently lower today than they were a year ago. To avoid leaving cash on the table, reject the twelve-month look-back. Argue for a target based on a trailing three-month or six-month average, which accurately reflects your current, highly efficient operating model. Support this argument by showing the buyer the operational changes that drove these numbers. Present your documented inventory processes and show how your team has systematically reduced cycles. Use your weekly scorecard history to prove that this lower working capital requirement is stable and sustainable, not a temporary cash squeeze to prepare for a sale. Under IVS 105, you can present an Adjusted Book Value analysis that demonstrates this excess working capital is actually surplus cash. By proving the reduction is a permanent result of operational excellence, you can demand that this surplus cash be paid out to you at closing rather than being swept by the buyer.