Negotiating working capital - inventory, receivables, and payables - is often the most contentious part of a deal.
Here is how I address it:
“Could you run your business without any inventory or balances on the A/P or A/R?”
“No. We need some float.”
“So you agree working capital is necessary to run your business?”
“Yes.”“It’s an operating asset, right?”
“Yes.”“So don’t you agree that the business valuation should include all the operating assets needed to operate the business?”
“Yes.”“So it wouldn’t make sense to pay extra on top of the valuation for your inventory and receivables?”
“No. I understand, the working capital is included in the valuation.”
