The buyer wants a definitive dollar peg for Net Working Capital, but our business experiences thirty percent seasonal revenue swings between spring and autumn. How do we negotiate a working capital collar or dynamic seasonal formula instead of a fixed peg that penalizes our closing cash?

Question

Tyler Smith · Accepted Answer

A static twelve-month trailing average working capital peg is dangerous for a seasonal business. If you close during a cyclical peak, a flat peg forces you to leave substantial operational cash in the business to fund receivables and inventory without receiving an upward purchase price adjustment. If you close at a cyclical trough, you may face an artificial closing cash deficit that requires you to write a check to the buyer.

To neutralize this risk, negotiate a dynamic seasonal target or a working capital collar. A dynamic peg establishes twelve individual monthly working capital targets based on three-year historical monthly averages, rather than one static annualized number. If the transaction closes in October, the working capital peg matches historical October requirements, accurately reflecting the inventory buildup required for your peak delivery season.

Alternatively, establish a working capital collar with a defined band, such as two hundred thousand dollars above and below the target. No purchase price adjustment occurs in either direction as long as closing working capital falls within this upper and lower boundary. This prevents post-closing friction over minor seasonal timing differences.

Internally, track working capital components weekly on your EOS Scorecard. Monitoring accounts receivable aging, inventory turns, and accounts payable cycles inside your leadership meetings gives you the exact historical precision needed to defend your seasonal model against the buyer's buy-side accounting team.