How accurate was your QoE for NWC?

June 10, 2025

by a searcher from The University of Arizona - Eller College of Management in Gilbert, AZ, USA

About finished with my QoE and have a recommended NWC number. It is double what the seller recommended and I truly think they believe it. Knowing these formulas are pretty standard, how did yours turn out? Share your industry if you can please.

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Reply by a searcher
from The University of Chicago in Nashville, TN, USA

I had a similar issue with my current deal, my estimate was twice that of the Seller. I used the traditional average AR + Inventory - AP. The Seller believes that it was overstated in QBO. We are now going with a mechanism where the Seller keeps AR but they leave cash worth their AR estimate and an additional ~15% of the purchase price is held back in escrow but every dollar of cash I receive in the first 8 weeks will release a dollar from the escrow to them at the end of the period. If he is right he doesn't leave anything beyond his current estimate, if I'm right, I will receive the amount I estimated, and maybe more. We looked at other project by project estimates but I lean heavily towards a simple to understand process that will limit disagreements after close. Happy to discuss.

Reply by a professional
from North Central College in Chicago, IL, USA

QofEs with good data can give appropriate NWC trends, it gets tough in growth businesses or businesses with unpredictable "seasonality" or "lumpiness" in the business. In stable businesses that are growing 5-10% a year the NWC number is usually aligned. I never put an exact number unless required I prefer to bracket and say no less than this and greater than this we pay dollar for dollar and it is usually a wide bracket. I have had sellers bill clients 3 times before close (some just held the invoices to send later) to try to artificially inflate NWC to increase purchase price

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