September 07, 2023

159 - What Sellers need to know about Net Working Capital

24 minutes

What Sellers need to know about Net Working Capital

Today #PoisedforExit met up with Joe Hellman, partner at Redpath and Associates and leader of their M&A services area. Joe works on a lot of business transactions for clients, both from the buy side and the sell side. We focused on Working Capital today, since it can be a confusing and sometimes touchy subject for sellers.

Net Working Capital, according to Joe, is calculated simply by taking current assets and subtracting current liabilities from the balance sheet and represents the liquidity of the company.

We also covered why it's important in transactions. If you are the buyer, you're going to need capital to keep the business going, right? For larger companies, it's not as much an issue, but for smaller ones, it is. We're talking about the lower middle market in this situation. If you are the seller, you likely believe all the cash and Accounts Receivable belong to you. At least, that's how many sellers see it. Joe says that how much of the A/R and cash you get to keep depend on several things; how the deal is structured, the size of the deal, the industry, and who the buyer is. "It depends" is an answer we all get a bit tired of hearing, but it's the truth. The most important thing for sellers to do when the time comes to negotiate this is to think and plan ahead on what you are willing to negotiate. Joe emphatically says "know your business and know your numbers!" Another piece of advice is to hire the right advisors who can help you well before it's time to start negotiating this important part of your transaction!

For more of Joe's advice, listen to the show here

Connect with Joe Hellman here and Julie Keyes here

Thank you to our show sponsors! Dayta, JAK, Sunbelt Business Advisors and Trust Point

Exciting events coming up!