The operating pattern matters

Receivables, inventory, payables, seasonality, and customer terms reveal how much capital the business requires to generate revenue. Unusual movements can raise questions about collections, purchasing, deferred spending, or the sustainability of earnings.

The target becomes a negotiation

Most transactions establish a normalized level of working capital to be delivered at closing. The measurement period, accounting policies, exclusions, and seasonality can materially affect proceeds.

Preparation creates leverage

Owners benefit from analyzing working capital before a buyer proposes a methodology. A defensible schedule supported by consistent accounting gives both sides a clearer basis for negotiation.

Questions for Owners

Questions worth considering

  • Is monthly working capital consistent with the business cycle?
  • Which accounts require normalization?
  • Can management explain changes without reconstructing the record during diligence?