Working Capital Not Included

by a searcher from University of California, Santa Barbara

7 months ago

I'm seeing a lot of brokered deals that specifically say that working capital or inventory and receivables are not included. What's up with that?
How do you deal with this? Is it just a matter of adjustment to the price and you'll work it out at the negotiating table or it's something more important to you?

1 like
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31 comments

intermediary

I went to a seminar given by a very respected expert in our industry, and it was his opinion that NWC should be included to the extent that its components are classified as being part of operations. In practicality, it depends. For Lower Middle Market businesses, there is usually no question that the NWC is included. For smaller Main Street businesses, not so much. If a business has discrete jobs as in construction and contract manufacturing, the seller will typically keep AR and AP in proportion to the percentage of parts and labor they supplied to the total job up to COE and the buyer would keep it after COE.

2 months ago | like reply | 0 likes

searcher from University of Colorado at Boulder

You would need to reduce the working capital from the purchase price, no matter the size, pretty straightforward. If you don’t when you go to sell it the next buyer certainly will!!!

2 months ago | like reply | 0 likes

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