Buyers often use working capital pegs during final negotiations to quietly claw back money at closing. How do we prepare and manage our net working capital baseline on our exit runway to prevent late price reductions?

Question

Tyler Smith · Accepted Answer

Working capital disputes are one of the most common ways owners lose millions in cash right before closing. In a transaction, the purchase price assumes you deliver the business with a normal level of net working capital (current assets minus current liabilities) so the buyer can run the company on day one. If your actual working capital at close is below the agreed peg, the buyer docks your purchase price dollar for dollar.

To protect yourself, spend the two years before going to market defining and stabilizing your working capital baseline. Many owners artificially drain the balance sheet to maximize distributions before a sale, stretching payables, deferring maintenance, and collecting receivables early. Buyers normalize this behavior during diligence and demand a high peg that leaves the owner owing money at closing.

Implement weekly balance sheet discipline. Track your days sales outstanding (DSO), inventory turns, and days payable outstanding (DPO) on your weekly leadership Scorecard. Automate receivables collections and eliminate uncollectible aged debt so your current assets reflect genuine cash liquidity. Work with a transaction CPA eighteen months prior to a sale to calculate your twelve-month trailing average working capital using institutional formulas. When you understand your true working capital cycles before entering exclusivity, you can set the peg defensively and prevent the buyer from turning a standard accounting adjustment into a hidden discount.