Working capital peg

What the LOI has to freeze besides a dollar

Method. Look-back window. Eligibility and E&O rules. WIP valuation. Consigned and customer-owned items. Unbilled work and deposits. Count date. Dispute path. The word “customary” is not a method. If those items are missing, you have a six-week argument instead of a peg.

SBA 7(a) change-of-ownership still uses a $5 million cap and a 10% injection under SOP 50 10 8 (Source: SBA). Lenders in that box will still ask how the peg is defined, because they are funding the same inventory the exhibit is about to count.

Classes a plant peg must name

Raw. Work in process. Finished goods. Consigned lots. Customer-owned tooling that is not yours to sell. Unbilled project work on long jobs. Inventory and WIP is the buyer-side owner for those classes. A retailer AR-minus-AP leftover ignores them.

Census CBP 2023 counted 284,452 manufacturing establishments (Source: Census CBP). Most of those floors are not shelf-SKU businesses. Do not borrow a retail peg.

How is the peg different from the purchase price?

Enterprise value assumes a normal level of working capital. The peg writes that normal. If close lands light, the seller wires the shortfall. If close lands heavy with eligible units, the buyer wires the excess. Ineligible heavy inventory is not a seller credit.

BizBuySell’s 223-day manufacturing median time to close is a sold-set statistic, not a reason to leave the peg undefined until week twenty (Source: BizBuySell). Write it in the letter.

How to pick a look-back that a plant can live with

Twelve trailing months is common because seasonality in orders and in metals prices will otherwise pick a lucky month. Some files use a thirteen-month average or a normalized monthly run-rate after a one-time inventory build. Whatever you pick, apply the same eligibility rules to every month in the average. A January that counted customer-owned resin and a June that did not is not an average. It is two definitions.

Deposits on long jobs can sit in AP or in deferred revenue. Unbilled milestone work can sit in AR or in nothing. Pick a home for each and write it. Inventory and WIP is the analytical sibling. The calculator is a teaching tool. The glossary only names the target.

Handoff

The teaching calculator is at working-capital peg calculator. The FAQ holds the question form. The glossary holds this noun. Jason Taken is a business broker and does not certify the calculator. Educational information only. Counsel and a CPA own the exhibit.

When the classes are named, book a confidential intro call.

Pegs that quietly double-count

Cash left in operating accounts that also sits in the average. A line of credit sweep that reduces AP the week of close. Progress-billing AR that the buyer cannot collect. Each of those can puff or starve the delivered number if the exhibit is silent.

Write cash-free, debt-free, and eligibility in the same paragraph. Then pick the look-back. Then pick the count date. The true-up page is the settlement. This page stays the target.

Seasonality and the lucky month

A shop that builds inventory ahead of a spring OEM shutdown will look heavy in March and light in August. A one-month snapshot will pick a winner. A twelve-month average with the same eligibility rules will not. If you must use a shorter window because the business changed, write why the old months are not comparable.

The peg is a named-class target. It is not “customary” and not a lucky month. The true-up settles cash against that target. A CIM should refuse “customary working capital” as a method. Bring inventory by class, a sketch of seasonality, and whether customer-owned lots sit in the building. Those three facts decide if the word customary is a lie. Working capital peg and true-up writes the exhibit. After the target noun is straight, a confidential intro call is the conversion path.