Our monthly cash flow and working capital fluctuate significantly because of our custom billing cycles. How do we stabilize our working capital during our runway so we do not get hit with a massive valuation haircut?

Question

Tyler Smith · Accepted Answer

Buyers look closely at your historical working capital to establish a peg for the transaction. If your cash flow is erratic, a buyer will set an artificially high working capital peg to protect themselves, which effectively reduces the cash you walk away with at closing. To prevent this, you must spend your exit runway standardizing your financial operations.

Start by making cash flow predictability a primary focus on your V/TO. Create a specific Rock for your finance seat to standardize billing schedules and tighten accounts receivable collections. Move your clients from highly customized billing terms to uniform, automated monthly payment cycles.

Use your weekly scorecard to track metrics like days sales outstanding and operating cash flow with absolute discipline. By showing a minimum of eighteen months of predictable, consistent working capital, you demonstrate to prospective buyers that your business runs on a reliable, standardized cash engine. This operational discipline eliminates the buyer's justification for a high working capital peg, ensuring you keep more of your hard-earned equity when the deal closes.