The buyer is insisting on a twelve-month rolling average for our net working capital peg, but our recent shift to upfront SaaS payments has structurally reduced our working capital needs. How do we prove this structural shift to lower the peg?

Question

Tyler Smith · Accepted Answer

A traditional buyer will look at a twelve-month rolling average to set your net working capital peg, but if you have recently optimized your cash conversion cycle, this historical calculation is a penalty. If your transition to upfront SaaS or automated billing has reduced the amount of cash tied up in accounts receivable, your actual working capital needs are much lower today than they were a year ago. You must prove this structural shift to the buyer to avoid leaving your hard-earned cash on the table at closing. Gather your weekly Scorecard metrics showing your Days Sales Outstanding (DSO) over the last six months. Compare this to the previous eighteen months to show a clear, permanent downward trend in your cash conversion cycle. Explain that your new automated payment workflows mean the business requires less working capital to operate on a daily basis. Under valuation principles, a lower required working capital peg means more cash is unlocked for you at close. Do not let the buyer use outdated historical averages to claw back your cash. Use your real-time operational data to force a target that reflects your current, efficient operating model.