A broker mentioned a working capital peg during our initial valuation discussions. How does this affect my cash at close and what should I be doing now to prepare?

Question

Tyler Smith · Accepted Answer

The working capital peg is a critical calculation in a business sale that determines how much current assets minus current liabilities you must leave in the business at the closing table. Buyers expect to acquire a business that is a fully functioning machine, which means it must have enough cash, accounts receivable, and inventory to run day-to-day operations without an immediate cash injection from the new owner. The peg is typically calculated as an average of your net working capital over the twelve months leading up to the sale. If your actual working capital at close is below the agreed-upon peg, the purchase price is adjusted downward, and you walk away with less cash. If it is higher, you get a positive adjustment. To prepare, you must avoid the temptation to starve the business of inventory or aggressively collect all receivables right before closing to hoard cash. This manipulation will be caught during due diligence and will damage trust. Instead, focus on optimizing your working capital cycle now. Use your weekly EOS Scorecard to monitor and improve your Days Sales Outstanding and inventory turnover. Consistently managing these metrics for twelve to eighteen months before a sale establishes a healthy, predictable baseline peg, protecting your proceeds at the closing table.