Working Capital in LOI?

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August 10, 2025

by a searcher from The University of Georgia - Terry College of Business in Denver, CO, USA

Hello! First time poster and preparing to present an LOI this week for a distribution business. I have a few questions as we're structuring the offer in regards to working capital: - How do you calculate the right amount of working capital to request in the LOI for a smooth first 90 days? - Do most deals you’ve seen include a working capital peg or target in the LOI? If so, how is it determined? - How do you define “normalized” working capital, and what adjustments do you push for before closing?
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Reply by a searcher
from University of Guelph in Toronto, ON, Canada
Prefer not to include the peg in the LOI but instead the methodology for how we will calculate it.
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Reply by a searcher
from Carnegie Mellon University in Denver, CO, USA
I just say normalized working capital will be calculated during QoE at the LOI stage and let my CPA figure that out during DD. I’ll also work with him to see how seasonality of the business can affect working capital. For example, if you are acquiring a business at a low season, the normalized working capital won’t cut it.
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