The buyer wants to use a modified cash-basis working capital peg that excludes our accrued bonuses and accounts payable from their calculation while keeping our accounts receivable. How do we structure the working capital peg to prevent this asymmetrical accounting from stripping our liquidity at close?

Question

Tyler Smith · Accepted Answer

Buyers often attempt to manipulate the working capital definition in the purchase agreement to force you to leave extra cash in the business at close. A common trick is to propose a modified cash-basis working capital peg that includes your accounts receivable but excludes your accrued bonuses and accounts payable. This asymmetrical approach artificially inflates the working capital target, meaning you must deliver more cash-equivalent assets to the buyer for the same purchase price.

To defend your cash, you must insist on a consistent, GAAP-compliant accounting methodology for both the target peg and the closing balance sheet. Every asset and liability must be treated symmetrically. If the buyer wants to count accounts receivable, they must also include the accounts payable and accrued expenses that generated those receivables.

Furthermore, tie your working capital metrics directly to your weekly Level 10 Meeting scorecard. Show the buyer your historical collection and payment cycles to prove that your current working capital levels are a result of highly efficient operations, not an attempt to starve the business before closing. Insisting on accounting symmetry ensures that you are paid for the actual cash you have generated, rather than leaving your hard-earned liquidity on the table.