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What is working capital, and why does it become one of the most negotiated—and misunderstood—aspects of a business sale? In this episode of Transaction Talk, Jennifer Fox and Eric Sigman welcome back Aaron Fox, Managing Director of Transworld Business Advisors of Boston, to break down one of the most important concepts in M&A. Aaron explains what working capital is, how buyers and sellers establish a working capital "peg," why it shouldn't be viewed as a reduction in the purchase price, and how proper planning can help prevent surprises at the closing table. You'll also learn the importance of maintaining business as usual throughout a transaction, how working capital true-ups work, and what sellers can do long before going to market to build buyer confidence and keep their deals on track. Whether you're preparing to sell your business or advising clients through a transaction, this episode offers practical insights into working capital and shows why preparation is one of the keys to a successful closing.
Key Points From This Episode:
- Introducing recurring guest, Aaron Fox.
- He unpacks working capital and why it is such a big deal.
- The key components of working capital.
- Why the working capital calculation is important in a transaction.
- Navigating the moving target and how to set the peg.
- He explains why working capital can feel like a reduction in the purchase price when buying an operating business.
- Why preserving normal business operations during the transaction matters.
- A key point: cash is not typically included in the working capital calculation.
- The biggest negotiation issues when it comes to working capital.
- How normalizing working capital protects against last-minute seller changes.
- Aaron explains how the true-up works.
- What happens if parties disagree after the true-up and how to prevent any issues.
- How to resolve any discrepancies that do arise from a true-up.
Tip of the Day: Prepare, prepare, prepare! Before the sale process begins, work with your team to organize and export key financial information so it's ready and easily accessible when you need it.
Links Mentioned in Today's Episode: Aaron Fox, Transworld Agent
Aaron Fox Phone Number: +1 781 773 8922
Aaron Fox on LinkedIn Jennifer Fox on LinkedIn
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