Because our AI-driven systems have radically shortened our cash conversion cycle, the buyer argues we should leave more cash in the business to cover what they call a normalized working capital target. How do we defend our lean cash requirements and keep that cash at close?

Question

Tyler Smith · Accepted Answer

When your automated systems reduce your cash conversion cycle, your business naturally requires less working capital to operate. However, buyers will often try to use a standard industry average to set a high net working capital peg, forcing you to leave more cash in the business at close. You must defend your position by proving that your lower working capital requirement is a permanent, structural advantage, not a temporary deficit.

Use your weekly scorecard metrics and balance sheet history to demonstrate your actual cash conversion cycle over the past twenty-four months. Show the buyer how your automated invoicing and collection workflows have consistently minimized accounts receivable days outstanding. Prove that your inventory turns are highly optimized and that your payables are managed systematically.

By presenting this historical data, you can demonstrate that leaving a large cash cushion in the business is unnecessary and represents an unproductive use of capital. Argue for a customized net working capital target that reflects your actual operating efficiency rather than generic industry benchmarks. This keeps your hard-earned cash in your pocket at closing instead of leaving it on the table for the buyer to enjoy.