When you're buying or selling a business, understanding and
negotiating the working capital adjustment mechanism is critical.
While most people recognise that good working capital management
can help to optimise cashflows and mitigate funding pressures, many
entrepreneurs don't realise the critical impact of working
capital in negotiating the selling price of a business.
Alan Max, Director of Moore Stephens Sydney, explains how
working capital can impact a deal price and offers useful tips to
ensure you don't miss out in negotiations.
What is working capital?
Actually, there's no standard definition for working capital,
as it varies from business to business. Generally speaking, though,
it's the capital tied up to fund your day-to-day business
operations, particularly purchasing and holding inventory, and then
converting this to accounts receivable before cash is received. In
most cases, it's more complicated than current assets less
current liabilities, as some of
