Working Capital tips?

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November 16, 2024

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Dallas, TX, USA

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Reply by a searcher
from Simon Fraser University in Vancouver, BC, Canada
Working capital should not be an area that you 'pick up value'. It should be structured in a way that's fair to all parties as you have to bet that if it's one sided in your favour, the seller will eventually figure it out and then you'll have a difficult time closing. Not worth it for something that could be as small as 1% difference on the EV of a deal.

The most logical method is a 12 month or 24 month average working capital. At closing if working capital is higher than average then the purchase price increases if it's lower than average the purchase price decreases. As for what is included in working capital and when to use 12 vs 24 months, that's a longer discussion.
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Reply by a professional
from Bentley College in Miami, FL, USA
Here's an article that might be helpful: https://www.duedilio.com/working-capital-in-small-business-acquisitions-insights-from-industry-experts/
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