Deal structure
Working Capital in a Business Acquisition: What Transfers at Closing?
How buyers evaluate normalized working capital, purchase-price adjustments, cash-free debt-free terms, and post-close liquidity.
A practical research brief from the Business Buyer Check learning library.
Define the Components
The purchase agreement should specify which receivables, inventory, prepaid items, payables, accrued expenses, customer deposits, and other balances count. Cash and debt are often handled separately, but terms vary.
Set a Normalized Target
Use monthly historical balances, seasonality, growth, payment terms, unusual aging, and accounting consistency. A simple year-end balance can be unrepresentative.
Protect Operating Liquidity
Even when the purchase price excludes working capital, the buyer must fund payroll, inventory, rent, taxes, and receivables timing after closing. Include this in total uses of funds.
Watch for Manipulation
- Delayed supplier payments
- Accelerated collections
- Under-purchased inventory
- Old receivables treated at face value
- Customer deposits without the related future obligation
Frequently Asked Questions
Is working capital included in the purchase price?
Sometimes. The letter of intent and purchase agreement should state the intended level, included accounts, target, and true-up mechanism.
What is a working-capital peg?
It is the agreed target level of net working capital expected to be delivered at closing, usually based on normalized historical needs.
Can negative working capital be normal?
Yes in businesses paid before they pay suppliers, but customer deposits and deferred obligations must be understood. Negative working capital is not automatically excess cash.
This educational material is preliminary decision support, not legal, tax, accounting, lending, appraisal, or investment advice. Requirements and transaction terms vary; verify current rules with qualified advisers and official sources.
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