Check the Working Capital Before You Settle on a Price
Bring the buyer’s working capital assumptions and your latest balance sheet. We can help you compare what the buyer wants you to deliver with what you’re expecting to receive at closing.
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Related Reading on Business Valuation and Sale Preparation
Work Out What Stays in the Business Before You Agree on Price
If you’re selling a Florida distribution company, settle three working capital numbers before you count your proceeds: the target in the agreement, the estimate used at closing, and the final amount after reconciliation. A $240,000 target and a $225,000 closing estimate can take $15,000 off the closing price under a dollar-for-dollar adjustment.
At Sailfish Equity Advisors, we represent business owners on the sell side. We help you compare offers on the same terms, including which receivables, inventory, and bills the buyer expects you to leave with the business. Your accountant can build the calculation. Your attorney can turn it into a purchase agreement that both parties can apply.
By Rajiv Khatri, Managing Partner, Sailfish Equity Advisors
Which Working Capital Will Transfer in Your Business Sale?
Start with the practical question. When the buyer takes over on Monday, which invoices can they collect, what stock can they ship, and which bills do they have to pay? A buyer can acquire a profitable operation and still need cash to cover payroll and supplier payments before customer receipts arrive.
Accounting working capital generally compares current assets with current liabilities. For a business sale, use the definition in the purchase agreement and the schedule that accompanies it. A deal might include eligible accounts receivable, saleable inventory, supplier payables, and selected operating accruals. It might exclude bank balances, financed equipment obligations, taxes, related-party balances, or a receivable the seller keeps. Get each material item onto the schedule.
The same distinction applies to cash-free, debt-free language. When parties use that structure, the way cash and debt are settled can be separate from working capital. A loan payoff, a supplier invoice, and a refundable customer deposit can all reduce what the seller receives through different parts of the deal. Trace each item to its assigned calculation so both sides can spot a double charge.
Some smaller asset sales leave receivables and payables with the seller and price specified inventory separately. Ask whether the buyer expects a working capital adjustment, a fixed inventory amount, a separate inventory count, or some combination. The answer changes both the buyer’s funding requirement and your closing statement.
Build the Working Capital Target From the Operating Cycle
The target, sometimes called a peg, is the agreed benchmark for what you deliver at closing. Build it from monthly financial statements and the actual collection, stocking, and payment cycle. Compare the same accounts over the review period, and check whether seasonality, rapid growth, a new product line, or unusual payment terms changed the balances.
Consider a Florida irrigation-parts distributor that brings in fittings and pumps ahead of its busier months. Inventory rises before customer orders ship. Receivables grow after the shipments, and supplier bills may fall due while those customer invoices are still open. A year-end snapshot could miss a material stock build. A peak-month target could require the seller to fund inventory the buyer won’t need at a quieter closing date.
Lay out the monthly numbers beside the sales and purchasing calendar. Show what caused the highs and lows, then compare an annual average with a closing-month benchmark or a shorter period if the operating model has changed. Pick a method that reflects how the business will run after handoff. Keep a note explaining why that period and those accounts were selected.
Check what happens if closing moves across a month-end. A large supplier payment or delivery may fall on one side of the date you modeled and the other side of the date you actually close. A second estimate for that scenario can help you explain the change before the final funds flow is prepared.
Reconcile Receivables, Inventory, and Payables Line by Line
For receivables, pull the aging at each cutoff and tie it to the general ledger. Flag customer disputes, credits, and balances collected after the cutoff. In the draft schedule, agree on whether past-due balances are excluded or reserved and which party collects excluded accounts. A later collection can be useful evidence about the closing balance if the agreed accounting rules allow it.
For inventory, distinguish stock the buyer can sell from damaged items, stale product, consigned goods, and customer-owned material. Decide who does the physical count, how it will be priced, and how goods in transit or received without an invoice will be treated. Map each rule to the inventory report so whoever builds the closing estimate can reproduce the number.
For payables and accrued operating expenses, include the obligations the agreement assigns to the buyer. Check for supplier invoices received after cutoff for goods delivered beforehand, customer credits, and expenses incurred but still unpaid. Review deferred revenue or customer deposits separately. If the buyer must fulfill prepaid orders, specify how the agreement accounts for the remaining obligation and any related funds.
Follow the Estimate From Signing Through the Final True-Up
Run a sample closing calculation while the agreement is being negotiated. Start with the base price. Show the amount attributable to cash, debt, and transaction expenses if applicable. Then show the working capital adjustment on its own line. Using a sample also gives both accountants a chance to find mismatched signs or missing accounts before the wire amounts are set.
In the distributor example, assume a $1.8 million base price and the negotiated $240,000 target. The seller’s closing estimate includes $180,000 of eligible receivables and $135,000 of eligible inventory. It subtracts $75,000 of eligible payables and $15,000 of operating accruals. That leaves $225,000 of estimated working capital. Under the example agreement, the $15,000 shortfall reduces the estimated closing price to $1,785,000 before other items.
After closing, the final calculation shows $172,000 of eligible receivables, $132,000 of eligible inventory, $77,000 of payables, and the same $15,000 of accruals. Final working capital is $212,000. The total shortfall from target is $28,000. Since $15,000 was already reflected in the closing estimate, the further adjustment is $13,000. The resulting price is $1,772,000 before other adjustments. The amounts are hypothetical.
There are deals where the estimate moves the price up. In a November 2025 SEC-filed purchase agreement amendment, estimated working capital exceeded the target and increased the estimated price. The same amendment separately accounted for estimated closing cash and specified a payment date. The document is an example of deal drafting. Your numbers and deadlines depend on your agreement.
Set the Escrow, Review, and Dispute Rules Before Closing
If the parties use an escrow, confirm the amount, which claims it can cover, and when the undisputed balance is released. In the example, the extra $13,000 might be payable from an adjustment escrow, or the seller might have to pay it directly. That depends on the payment and escrow provisions. Ask whether the agreement permits adjustments in both directions and whether any limits or thresholds apply.
Assign responsibility for the estimate and the final statement, and put calendar dates on the review and objection process. Specify access to the inventory records, invoices, ledger, and backup schedules. It is easier to review an adjustment if the buyer must identify each disputed line with its support and the seller’s accountant can see the same underlying records.
Agree with counsel on how unresolved items are referred to an independent accountant, what that person can decide, and how the cost is allocated. The agreement can also establish the priority of the definitions, the sample schedule, and applicable accounting practices. Run the target and the closing statement through the same rules, including the cutoff time and how items spanning the closing date are handled.
Prepare Your Working Capital File Before Buyers Ask
Give your controller or bookkeeper a small assignment. Pull monthly balance sheets, receivables and payables agings, inventory reports, and the close calendar. Tie the reports back to the ledger. Mark an exceptional stock purchase, a disputed customer balance, or a one-time timing difference and keep the supporting paperwork. A clear reconciliation gives the buyer a way to understand an unusual month.
Keep running the business normally. A decision to accelerate collections, defer supplier payments, or hold off on restocking can affect the closing numbers and the buyer’s ability to operate. Review cash management and any pre-closing operating covenants with your advisers before changing course. If seasonal buying is coming up, document why it belongs in the ordinary operating plan.
When I review terms with a seller, I want the price and the expected closing cash on the same page. Put the proposed working capital definition and target next to the headline offer. If one buyer includes inventory and another prices it separately, compare their economics using the same opening balance sheet. Our Florida business sale guide explains where this work fits into preparing for diligence and closing.
Before you sign, bring the draft purchase price schedule, the latest balance sheet, and the buyer’s working capital assumptions to your adviser and accountant. Ask them to walk you through what you’re expected to leave, what you’re expected to collect or pay, and who can revisit the number after closing. You should be able to explain each of those answers from the documents.
Florida Business Sale Working Capital FAQs
What is a working capital peg when selling a business?
A peg is the target working capital amount in the purchase agreement. The parties compare it with eligible working capital at closing under the agreement’s definitions. Ask your advisers to reproduce the peg from the historical ledger and to explain why the selected months represent the amount needed to operate at handoff.
Can I keep cash and receivables when I sell my business?
It depends on which assets the agreement transfers and how it defines working capital. Some sellers retain cash and selected or all receivables. Others deliver agreed receivables to the buyer as part of the deal. Put the treatment in writing, including who handles later collections, payment errors, credits, and outstanding disputes.
How does an inventory count affect the working capital adjustment?
An agreed count can change eligible inventory if the physical quantities or condition differ from the closing estimate. The price effect depends on the contract’s valuation rules and which stock is included. Agree in advance on cutoff, damaged and obsolete items, and how both parties will observe or review the count.
Can the purchase price change again after closing?
Yes, if the agreement provides for a final working capital true-up. The final statement replaces the estimate for purposes of the adjustment. Compare the final amount with the amount already used for the closing wire so the same difference is applied once. Your agreement sets the review deadline and payment process.
How does Sailfish Equity Advisors help Florida owners with working capital in a sale?
We help the seller identify what the buyer expects to receive, compare competing offers using consistent assumptions, and bring questions about accounting and contract language to the appropriate advisers. We ask for a sample calculation while terms are open, so the seller can see how the target might affect closing proceeds.