Working capital

Definition

The cash the business runs on day to day: receivables and stock, less payables.

Why It Matters

Every deal needs enough of it on day one to make payroll and pay suppliers before customers pay you, and whether a normal level conveys with the purchase is one of the most-fought lines in the agreement. Buyers who raise it into the deal keep their own cash; buyers who forget it fund the gap out of the first month's receipts, which is how tight months start on day one.

In numbers: A shop that collects in 45 days but pays suppliers in 15 needs roughly a month of operating costs in cash at all times; on $1.2M of revenue that can mean $100k the buyer must hold or raise on day one.