The working capital question nobody warns you about
Most sale agreements require you to leave a normal amount of working capital in the business. It is negotiated early, settled after closing, and it surprises sellers.
Late in most deals a term appears that sellers have not thought about: how much working capital stays in the business. It is rarely in the first conversation and it routinely moves real money.
What is actually being agreed
A buyer is purchasing a business that can operate on day one, which means receivables to collect, parts on the shelf, and enough cash to make payroll before the first invoices land. The agreement sets a target — usually an average of recent months — and you deliver the business with roughly that much in it.
Deliver more and the buyer typically pays you the difference. Deliver less and the price comes down. The settlement happens weeks after closing, once the final numbers are known, which is why sellers are sometimes surprised by a cheque going the wrong way after the deal is done.
Where it goes wrong for sellers
Seasonal businesses get hurt by a target averaged across the wrong months. Businesses billing in stages get hurt when work in progress and unbilled work are handled loosely. And an owner who runs the receivables down hard in the last quarter to take cash out can find he has handed back more than he took.
A Straight Answer
Ask what the working capital target is and how it was calculated, in the same conversation as the price. A target set from the right months is ordinary. One set from the wrong months quietly reprices the deal, and by then the leverage is gone.
BuiltEquity is a sell-side brokerage for trades and field-service companies. Nothing here is legal, tax or accounting advice. Your CPA and your attorney are the authority on your situation.