Our business experiences highly seasonal cash flow fluctuations, and the buyer is trying to set the Net Working Capital peg during our peak cash-depleted month to force us to inject cash at close. How do we structure a dynamic or multi-month seasonal adjustment mechanism to protect our transaction proceeds?

Question

Tyler Smith · Accepted Answer

Setting a flat Net Working Capital peg based on a single point in time is a classic buyer tactic to manipulate the purchase price. If your business is seasonal, a static peg will either force you to leave excess cash in the business or require you to fund a massive working capital shortfall at closing.

To prevent this, you must demand a dynamic, multi-month average that reflects a true operating cycle. Instead of a single month or even a basic trailing twelve-month average, propose a seasonal normalization mechanism. Calculate your working capital requirements over a rolling twelve-month period to establish a baseline, but write a seasonal adjustment formula into the purchase agreement.

This formula adjusts the working capital target upward or downward depending on the exact month the deal closes. If you close during your peak cash-depleted month when inventory is high and receivables are low, the peg must adjust downward to reflect that natural cyclicality. This ensures you are not penalized for normal operational fluctuations. Map out your monthly working capital history using your EOS Scorecard data to prove this cyclicality is predictable and operational. Presenting this clear, objective trend makes it impossible for the buyer to argue for a punitive, static peg.