Skip to content
New England SMB Ledger · ME · NH · VT · MA · RI · CT
NewHands
Resources

Educational

Working capital peg

At closing, the business needs enough inventory and receivables to operate, and it has payables. A peg is the target the parties write into the purchase agreement. Deliver more, and the buyer typically pays the difference. Deliver less, and the price typically comes down.

The peg

Cash and interest-bearing debt stay out of this illustration. Put in the working assets and the operating liabilities the contract would count.

Adjustment

Net working capital
$90,000
Price adjustment
$20,000

Net working capital is above the peg. Under a typical peg, the buyer pays the difference because the seller delivered more working capital than the contract required.

  • A working-capital peg is a term the parties negotiate in the purchase agreement. It is not a statute and not an SBA formula.
  • This figure is current assets excluding cash, minus current liabilities excluding interest-bearing debt. The contract's definition controls, including what counts as debt.
  • There is no official typical peg as a percent of revenue. This explainer will not invent one.

Read the working-capital guide