Our cash flow is healthy, but we tend to run a very lean working capital cycle that fluctuates wildly month to month. How do we stabilize and optimize our net working capital target during our runway so we do not end up leaving a massive pile of cash on the table at closing?

Question

Tyler Smith · Accepted Answer

Many business owners ignore their net working capital until they are in the final stages of negotiating a deal, which is a costly mistake. Buyers look at your historical net working capital to establish a peg, which is the average amount of working capital you must leave in the business at closing. If your working capital fluctuates wildly on your runway, you risk leaving too much cash in the business.

To protect your cash at close, you must use your exit runway to stabilize and optimize your working capital cycle. Start by tracking your accounts receivable, accounts payable, and inventory levels on your weekly Scorecard. Implement strict, predictable processes for collections and payments to eliminate seasonal spikes.

Leverage AI-powered cash flow forecasting tools to predict your working capital needs with high precision. This data allows you to run a highly efficient cash cycle, proving to a buyer that the business can operate smoothly on less capital.

By maintaining a consistent, optimized working capital cycle for at least twelve to twenty-four months before going to market, you establish a highly favorable historical baseline. This prevents the buyer from setting an artificially high peg during negotiations, ensuring you keep your hard-earned cash when the deal closes.