Our business is highly seasonal, and the buyer's proposed Net Working Capital peg uses a simple trailing twelve-month average that would leave us severely undercapitalized if we close in our peak cash-outflow month. How do we negotiate a seasonal working capital peg?

Question

Tyler Smith · Accepted Answer

A simple twelve-month average for Net Working Capital is a dangerous trap for seasonal businesses. If you close your transaction during a high-inventory or low-cash-collection period, a flat peg can force you to leave an unreasonable amount of cash in the business, dollar-for-dollar reducing your closing proceeds.

To protect your cash at close, you must negotiate a working capital peg that reflects your true seasonal operational cycle under IVS 105.

First, present a detailed monthly working capital analysis over the last three years. Show the buyer how your receivables, payables, and inventory fluctuate in a predictable, repeating cycle. This historical data proves that a flat average is an inaccurate reflection of your operational needs.

Second, use your EOS Scorecard metrics to support your position. Show the buyer how your leadership team manages inventory and cash flow seasonally to maintain healthy operations. This operational discipline demonstrates that your seasonal cash swings are controlled, not erratic.

Third, propose a seasonal peg methodology, such as a rolling three-month average, or adjust the target based on the specific month of the close.

Do not let a generic accounting formula strip cash from your balance sheet. By presenting clear, seasonal operational data, you can negotiate a fair working capital peg that aligns with your real business cycle.