How to Negotiate Working Capital in Acquisitions

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How to Negotiate Working Capital in Acquisitions

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Summary

Sam Rosati and Kevin Henderson break down one of the most misunderstood and critical concepts in small business acquisitions: working capital. Prompted by listener requests, they walk through why working capital is often a top deal killer and how misalignment between buyers and sellers can derail otherwise strong transactions. Through clear examples and practical frameworks, they explain how working capital directly impacts purchase price, liquidity, and post-close operations. The episode serves as a foundational guide for buyers navigating financial diligence and structuring deals with confidence. They discuss: Why working capital is effectively a purchase price negotiation How insufficient working capital can create immediate cash flow crises post-close The concept of a working capital target and the mechanics of true-ups Common pitfalls, including AR ownership, customer deposits, and prepaid expenses How sellers can unintentionally or intentionally manipulate working capital before closing Links: SMB Law Group - https://smblaw.group/ Evan on LinkedIn - https://www.linkedin.com/in/evan-thomson-327a78216/ Eric on LinkedIn - https://www.linkedin.com/in/eric-b-pacifici/ Kevin on LinkedIn - https://www.linkedin.com/in/khendersonco/ Sam on LinkedIn - https://www.linkedin.com/in/sam-rosati-68787a8/ Topics: (00:00:00) - Intro(00:02:56) - Working capital as a deal killer(00:09:20) - Working capital defined(00:10:39) - Where buyers get tripped up(00:12:23) - Receivables nightmare scenario(00:16:25) - Working capital target explained(00:19:37) - Normalizing and setting targets(00:21:38) - QofE support(00:27:03) - The SBA cash trap(00:33:39) - Deposits and prepaids(00:38:32) - Overdelivery pitfalls(00:41:39) - Handling overdue AR(00:44:18) - Advanced topics(00:47:00) - Final takeaways

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