What sellers often miss
Many owners focus on whether the working capital target seems high or low without fully understanding how it was calculated. Buyers often spend more time evaluating the methodology because they know the methodology ultimately drives the financial result. A reasonable number based on a flawed methodology can still create an unreasonable outcome.
The takeaway
Do not wait until the end of the transaction to understand working capital. Engage your advisors early, review historical trends, consider seasonality, identify unusual items, and make sure both parties clearly understand the methodology being applied. The smoother the methodology discussion, the smoother the closing process is likely to be.
Illustrative, not your deal. Where the book uses dollar figures, they are there to show how something works, not to describe your business. Your banker, your accountant, and your attorney will put real numbers to your own situation. Full note.
Terms this chapter uses
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