Working capital in a business sale: Working capital in a business sale is the current assets (like receivables and inventory) minus current liabilities (like payables) that a business needs to keep running, and buyers expect a normal level of it to be delivered with the business at closing.
The working-capital peg
Most deals set a working-capital peg, a target level of net working capital the business must have at closing, usually based on its recent historical average. If the business delivers more than the peg, the seller is typically paid the excess; if it delivers less, the price is adjusted down. This stops a seller from stripping cash and collecting receivables right before closing and handing the buyer a business that cannot fund its next payroll.
Why sellers get surprised by it
Working capital is one of the most common places a deal quietly changes price after the LOI. Owners often assume they keep all the cash and collect all the receivables; in most structures they deliver a normal working-capital balance and only keep the surplus. Understanding the peg before signing the LOI, and negotiating how it is calculated, protects real money at closing.
Frequently asked questions
Do I keep the cash when I sell my business?
Usually the deal is done on a cash-free, debt-free basis, meaning you keep the cash and pay off the debt, but you must leave a normal level of working capital (receivables, inventory, payables) in the business. The exact treatment is set by the deal structure and the working-capital peg.
What is a working-capital peg?
It is the target level of net working capital the business must have at closing, usually its recent historical average. Delivering above the peg typically pays the seller the excess; delivering below it reduces the price. It prevents last-minute stripping of the business.
Who gets the accounts receivable when a business sells?
In most structures the receivables stay with the business as part of the working capital delivered at closing, and the buyer collects them. The seller is compensated through the price and any working-capital surplus above the peg, not by keeping the receivables directly.
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