The buyer is proposing a net working capital target that excludes our unpaid client retainers, but they are counting those same retainers as revenue toward our post-close earnout targets. How do we structure the deal to prevent this double-counting from hurting our liquidity at close?

Question

Tyler Smith · Accepted Answer

This is a classic buyer maneuver designed to strip liquidity out of your business at close while making your earnout targets harder to reach. By excluding unpaid client retainers from your net working capital target, they force you to leave extra cash in the business to cover operational expenses, effectively lowering your cash proceeds at close.

To defeat this, you must establish a clear, consistent methodology for how working capital is defined and how it relates to your earnout. Demand that any asset or liability used to measure your post-close performance must be treated consistently in the opening balance sheet.

If the buyer wants to count those retainers as revenue for the earnout, those accounts receivable must be included in the net working capital peg as current assets. Use your historical cash flow data and your weekly Scorecard metrics to prove the predictability of these collections.

A fair working capital target should reflect a true twelve-month rolling average of your actual operational needs. By defending this alignment, you protect your cash at close and ensure your post-close earnout is measured on a clean, honest financial baseline.