Buyers require a certain amount of working capital to be left in the business at close. How do we optimize our cash conversion cycle during our exit runway so we do not leave too much of our own cash on the table?

Question

Tyler Smith · Accepted Answer

The net working capital peg is one of the most common areas where owners lose money at the closing table. If you run your business with bloated inventory or slow accounts receivable, a buyer will establish a high working capital baseline, forcing you to leave more of your cash in the business when you hand over the keys.

To protect your cash, you must aggressively optimize your cash conversion cycle at least eighteen months before going to market. Start by reviewing your accounts receivable terms. Work to shorten payment cycles and enforce strict collections. Bring these metrics onto your weekly scorecard and address any late payers immediately during your Level 10 Meeting™ using the IDS® process.

Simultaneously, optimize your inventory management and negotiate better terms with your suppliers to delay cash outflows. The goal is to run a lean, highly efficient cash engine.

By systematically reducing the amount of working capital required to run your daily operations, you establish a much lower working capital baseline. When the transaction closes, a lower working capital peg means more cash remains in your pocket rather than being trapped in the business for the buyer's benefit.