The buyer is calculating our Net Working Capital target using a twelve-month average that includes our peak seasonal cash requirements, effectively forcing us to fund their initial operating cash. How do we use our daily operational velocity metrics to negotiate a seasonal working capital collar instead?

Question

Tyler Smith · Accepted Answer

A twelve-month straight average for Net Working Capital is unfair for seasonal businesses. If you close during your peak season, you will be forced to leave an inflated amount of cash in the business, which acts as an backdoor price reduction. You must defend your cash using real operational data. Begin by compiling your historical cash-conversion cycle metrics from your weekly Scorecard. Show the buyer how your inventory and accounts receivable fluctuate predictably throughout the year. If you can prove that your high inventory levels in the spring are always cleared by cash collections in the summer, you have the leverage to demand a seasonal adjustment. Propose a working capital collar instead of a single target number. A collar establishes an upper and lower bound based on the specific month of closing. If you close in a peak month, the target is adjusted upward, but the buyer must compensate you dollar-for-dollar for the excess working capital left behind. Use your V/TO to present your seasonal sales cycles and operational plans clearly. Show that the working capital requirement is a temporary operational phase, not a permanent baseline. By proving your working capital velocity is tightly managed and predictable, you prevent the buyer from using generic averages to siphon cash from your closing table.