Working Capital

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May 21, 2022

by a searcher in Chicago, IL, USA

How much working capital is typically left in a business as part of an LOI? I have read that it varies, but I am wondering whether asking for 3 months calculated on a TTM average is a good approach? Also, does the WC left in the business generally effect the purchase price?

Thank you

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Reply by a searcher
from Northwestern University in Evanston, IL, USA
Ensure that you agree to a working capital "peg". This is the amount of working capital the seller delivers to the buyer upon purchase. The price is reduced (dollar for dollar) for every dollar short of the peg. Conversely, if the seller over delivers on the "peg" you'll pay extra for that typically.
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Reply by a searcher
from Texas A&M University in Johnson City, TN, USA
Cash free, debt free, net AR less AP for your LOI. Inclusive of inventory, equipment, etc required for "normal" operation. If you want additional "cash" then look towards revolving LOC (vs adding to an acq loan).
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