Working Capital Adjustment in a Business Sale. How it Can Change the Final Purchase Price!

Beyond a business's cash flow and purchase price one of the biggest negotiating points in a Letter of Intent is how much working capital is to be left in a business when it is sold. In this episode we walk through what is working capital, where you find it, how its calculated and what is the appropriate amount to have in a business. If you're a Seller, knowing how much is enough allows you to remove the excess from the company before going to market. If you're a buyer, knowing how much is appropriate will protect you from buying a company and then having to write a second check just to keep it operational. Working Capital is one of the most negotiated deal points in a Letter of Intent, having a working knowledge of this concept will allow you to negotiate in good faith and protect your investment.