Negotiate Working Capital in a Business Sale

Define what the price includes

An offer can describe the transaction as cash free and debt free while still requiring working capital. The labels do not tell you exactly which balance sheet items transfer.

List cash, receivables, inventory, prepaid costs, payables and deposits. Ask the advisors to identify included items and exclusions in writing.

Use the operating cycle rather than one convenient date

A company needs cash for wages and stock before all customer invoices are collected. Seasonal low points can make a single month end balance misleading.

Prepare a monthly working capital history and a forecast. Agree how unusual balances, aged receivables and obsolete inventory will be treated.

Put the target and adjustment method in the agreement

A working capital target is meaningful only when the accounting method is clear. Specify which accounts enter the calculation and who prepares the closing statement.

Have counsel address review rights, disputes and any postclosing true up. These terms can change proceeds even when the headline price does not move.

Compare net proceeds across offers

An offer with more cash at closing can still leave the seller funding an unexpected obligation. Compare the full asset package, retained debts and contingent payments.

Ask the CPA to model the amount you keep after debt, professional fees and taxes. Treat a seller note as an amount to collect later, not cash already received.

Start with normalized earnings and the inventory questions for restaurant supply sellers.

Put your questions beside your numbers

Use the seller estimate form to describe your business. You can ask about working capital and retained liabilities before deciding whether to pursue a sale.

For a conversation, call (714) 555-0162.