Working capital is like gas in a car—it makes your business go. So when buyers acquire a company, they expect some “fuel” to be included in the tank.
But when business owners get successful and comfortable, they get lax about working capital. They establish a habit of fast payment, slow collections, and excess inventory, and they turn their well-oiled machine into a gas guzzler. Go into a sale in this condition and you’re basically giving away money.
Working capital can be a sticking point in negotiations, so the sooner you minimize working capital the better. Plan to make adjustments at least a year prior to sale.
For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at email@example.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.