Wisdom needed for question on networking capital with an asset sale.

June 19, 2025

by a searcher from Purdue University in Chicago, IL, USA

I've submitted an LOI to complete an asset sale with normalized networking capital to be determined during due diligence and included in the deal. The seller has never sold a business so he is leaning on his valuation team. His team is telling the seller and I, that networking capital is never included in an asset sale. They state, if the buyer wants it then the buyer pays the seller for networking capital and inventory. This is my first acquisition as well. Is the above typical? The seller did state, they want inventory purchased and to take the AR with them, they would also pay the AP. They would leave me with any un-invoiced orders though. Much appreciate any shared wisdom.

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Reply by a searcher
from Columbia University in Fairfax, VA, USA

Sellers and brokers may disagree - but not providing Working Capital as part of the deal is rarely ever acceptable. You're buying a turnkey business, which means that a normalized level of Working Capital is part of what you're purchasing (it's the fuel that keeps the business running). That can come in the form of Inventory, Accounts Receivable, Pre-Paid Expenses, etc. It almost never comes in the form of actual "Cash" as most Asset Purchases are done on a cash-free, debt-free basis. If the seller agrees to leave you cash, you'll simply just reduce the purchase price by that amount. Depending on the complexity of the business, calculating an estimate for Working Capital isn't as complicated as it sounds. If you can get access to multiple Balance Sheets over time (ideally monthly), you can calculate the four key metrics that will give you a high-level estimate: - Days Sales Outstanding (DSO) - Days Inventory Outstanding (DIO) - Days Payables Outstanding (DPO) - Cash Conversion Cycle (CCC), which is based on DSO, DPO and DIO Then, use the CCC and the business's Fixed Operating Expenses to estimate how much Working Capital the business needs to operate without disruption. If you have those numbers, the Working Capital conversation becomes a rational, data-driven discussion with the seller or broker. It may sound like a heavy lift, but with the company’s P&Ls and Balance Sheets, it’s a straightforward set of calculations. Feel free to shoot me a message if you have any questions, happy to help: redacted

Reply by a professional
from Western Michigan University in Columbus, OH, USA

The valuation team is correct. By default, NWC is generally not included in the purchase price in the SMB space. Everything is negotiable and the seller will consider your offer in totality. You can easily get up to $500k from a lender for WC. If you need more than that, you might need to increase your offer price and have them include working capital.

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