Working Capital Peg
The amount of operating cash and inventory you have to leave in the business at closing — often a surprise to sellers.
The working capital peg determines how much operating capital you have to leave in the business at closing — and it's one of the most common surprises sellers encounter at the closing table.
Buyers don't see the peg as a negotiation tactic — they see it as basic operational reality.
Buyers don't see the peg as a negotiation tactic — they see it as basic operational reality. They're buying a going concern, and a going concern needs working capital to function. What the buyer is doing in the peg calculation is making sure they don't have to fund operations on day one out of their own pocket. The asymmetry is in the math: a buyer who studies the trailing 12 months in detail and sets a peg based on a careful average has an advantage over a seller who hasn't looked at the same numbers. Same principle whether the deal is a $400K main street business with a $30K peg or a $400M deal with a $30M peg — the seller who comes prepared with their own analysis negotiates a fair peg. The seller who doesn't accepts whatever number the buyer's analyst proposes.
Find out what a buyer would see in your business — before you talk to one.
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