Working capital is one of the most common—and least understood—reasons otherwise solid deals fall apart.
Here’s how it usually shows up.
A seller owns a $25 million manufacturing business. There’s $2.5 million of cash sitting on the balance sheet. From the seller’s point of view, that cash feels earned. It represents years of discipline, risk, and sacrifice. Naturally, the seller assumes it comes with the sale.
Then the buyer says, “That cash stays in the business.”
From the buyer’s perspective, this isn’t aggressive or opportunistic. It’s operationally necessary. The business burns millions of dollars each month in payroll, inventory, and operating expenses. If the seller removes all cash at closing, the buyer is forced to immediately inject capital just to keep the company running.
We often explain this using the gas tank analogy. When you buy a car, you expect to drive off the lot with a full tank. You don’t expect to pull onto the road and immediately head to a gas station. Normalized working capital serves the same function—it ensures continuity of operations on day one.
The problem isn’t math. It’s psychology. Sellers see that cash as part of their personal net worth. Buyers see it as fuel for the business. If this gap isn’t addressed early, it creates frustration late in the process—usually after everyone is tired and emotionally invested.
This is where a good intermediary matters. Our job is to explain working capital expectations upfront, in plain language, before a letter of intent is signed. When an LOI references “normalized working capital,” sellers need to understand exactly what that means in dollars.
We don’t want someone discovering sixty days into diligence that their net proceeds are millions less than expected.
Working capital isn’t a footnote. It’s a major economic term.
Handle it early—or watch it blow up a deal that otherwise should have closed.