How do acquirers establish the net working capital target during a transaction, and what operational steps on our runway prevent leaving trapped cash on the table?

Question

Tyler Smith · Accepted Answer

Net working capital (NWC) is one of the most common mechanisms buyers use to quietly renegotiate purchase prices during final closing negotiations. Net working capital is defined as current operational assets minus current operational liabilities, excluding cash and funded debt. Acquirers calculate an NWC peg based on your trailing twelve-month average to ensure the business has adequate operational liquidity on day one post-close.

If your working capital at close falls below the negotiated peg, the purchase price is reduced dollar for dollar. Conversely, if you carry excess working capital tied up in slow-paying accounts receivable or dusty inventory, you hand that excess cash to the buyer for free without receiving additional purchase credit.

Protecting your closing proceeds requires operational balance-sheet discipline two to three years before going to market. Tighten your credit terms and establish a relentless collection cadence inside your weekly Level 10 Meeting™. Write off or liquidate obsolete inventory so your asset baseline reflects pure operational velocity. Negotiate standardized terms with vendors to keep accounts payable normalized rather than artificially depressed.

When you consistently run a lean, predictable cash-conversion cycle, you establish an accurate, defensible historical NWC peg. That prevents acquirers from claiming your business is starved of working capital and ensures you convert balance-sheet value into actual cash at the closing table.