When a buyer buys your business, they need enough gas in the tank to run it on Day 1. This “gas” is Net Working Capital (Inventory + Accounts Receivable – Accounts Payable).
The “Peg” (The Target)
We calculate the average Working Capital you have had over the last 12 months. Let’s say it’s $100,000.
This becomes the “Peg.”
- The Deal: You must deliver the business with $100,000 of Working Capital.
The “Cash Inclusion” Trap
Standard deals exclude cash. You take your checking account with you.
But aggressive buyers will try to argue that Operating Cash (the money in the till or the float in the account) should be included in the definition of Working Capital.
Why this is dangerous:
- If the Peg is $100,000 and it consists of Inventory + AR, you are fine.
- If the buyer forces you to include $50,000 of Cash in that Peg, you are effectively leaving $50,000 of your own money in the business account for them to use.
The Strategy: “Cash-Free means Cash-Free”
We fiercely negotiate the definition of Current Assets.
- We ensure “Cash and Cash Equivalents” are excluded from the Peg.
- If the buyer needs cash for Day 1 operations, they must bring their own working capital injection to the closing table—they don’t get to keep yours.
The purchase price is for the business, not for your bank account balance. We make sure you keep every dollar of liquidity you earned.