Buy-Side · Working Capital
Working capital and peg analysis.
The purchase price assumes the business arrives with the working capital it runs on. We size that assumption from the actual balance sheets, derive a defensible target, and support the definition and true-up so what you agreed to is what you get at closing.
The problem
The price assumes working capital nobody has measured
Every offer quietly assumes the business transfers with the receivables, inventory, and payables that produce its earnings. A seller heading to closing has the opposite incentive: collect hard, let inventory run down, stretch the payables, and hand over the same business minus the fuel it runs on. Without a measured target and a clear definition, the buyer discovers the gap in the first sixty days and funds it from the same cash flow that services the acquisition debt. A peg set at a seasonal extreme, or on a definition the two sides read differently, is not much better: it just moves the argument to the closing statement.
What's included
What the analysis covers
✓Working capital sized from the trailing monthly balance sheets, on a consistent accounting basis
✓A derived peg with the workpaper behind it, month by month and account by account
✓Seasonality testing so the target reflects the cycle, not the measurement date
✓The definition schedule: which accounts count, treated how, on what basis
✓Review of receivables quality and inventory composition behind the target
✓True-up scenario modeling: what the price does at different delivered levels
✓Support for your counsel on the peg and adjustment provisions
✓The working capital funding need folded into your coverage and cash-to-close analysis
How it works
From balance sheets to a defensible target
01
Send the balance sheets
Monthly or quarterly balance sheets for the trailing periods, with the receivables aging and inventory detail if available.
02
We size the need
We measure the working capital the business actually runs on, on a consistent basis, and test it across the seasonal cycle.
03
We derive the peg and definition
A documented target with the account schedule behind it, ready for the LOI in outline and the purchase agreement in full.
04
You close on the bargain you struck
True-up scenarios modeled in advance, the closing statement reviewed against the definition, and the funding need built into your cash-to-close plan.
Who it's for
Built for buyers whose price assumes a running business
Buyers of inventory-heavy, seasonal, or receivables-driven businesses, and any SBA-financed buyer whose post-closing cash is spoken for by debt service. If your deal has no peg, a peg with no definition, or a target taken from the single most recent balance sheet, this is the analysis that finds the gap before the closing statement does.
Questions
Common questions
Do smaller deals really use a working capital peg?
Not always, and that is the point. Many owner-operator transactions close on whatever balance sheet exists at closing. In that structure the analysis still matters: it sizes the working capital you will need to fund at or after closing, so the gap enters your cash-to-close plan instead of surprising your first quarter.
How is the target usually set?
A common approach averages the business's working capital, as defined by the deal schedule, over a trailing period, often twelve months, so the level reflects the operating cycle rather than a single date. Seasonal businesses take more judgment, and the definition of which accounts count matters as much as the number.
Who drafts the peg and true-up provisions?
Your attorney drafts them; we do the analysis behind them. We derive the target, build the definition schedule, and model the true-up scenarios, then work with your counsel so the agreement reflects the numbers. We do not provide legal services.
Does this interact with the SBA loan?
Yes, practically. Working capital a buyer must fund at or after closing competes with debt service for the same cash. We fold the funding need into the same coverage analysis we run on the earnings, so the deal is tested on the cash that will actually be available.
Will the business arrive with the fuel it runs on?
A confidential call is the fastest way to find out what the balance sheets say before the LOI locks the terms.
Schedule a Confidential CallNexTax Advisory provides financial and tax advisory services. It does not provide legal services or formal audit or attest engagements. Analysis is intended to inform your decisions alongside your attorney, lender, and independent quality-of-earnings provider, not to replace them.