When selling a business, one overlooked area can be working capital. Buyers want to know the business can operate smoothly after the transaction, which means there needs to be enough liquidity for payroll, vendor payments, and day-to-day expenses. That responsibility tends to fall on the buyer, but sellers should still understand how working capital is evaluated.
Most deals include a “working capital target.” This is a benchmark based on the company’s historical averages of accounts receivable, accounts payable, and inventory. If the business typically needs $300,000 of working capital to function, the buyer will need to bring that to the table at closing. If the buyer underestimates the need, the business can face immediate cash flow stress, which hurts everyone involved.
For sellers, the key is knowing what a reasonable working capital target looks like before negotiations begin. A business with seasonal swings in receivables or inventory may require more in certain months. Without preparation, these fluctuations can create confusion during due diligence and delay closing.
Buyers will perform detailed analysis to ensure they are setting the right target. Sellers who already understand these numbers can answer questions confidently and avoid unnecessary back-and-forth. This builds trust and keeps the deal on track.
While no business is perfect, clarity around working capital helps both sides move forward. A good broker can guide sellers through the process, ensuring they have realistic expectations and are ready to explain how the business manages its cash flow needs.