Working capital peg
The agreed level of net working capital the business must have at closing, with any shortfall or excess settled in cash afterwards.
Also called: Target working capital · NWC target
The peg turns a moving number into a fixed obligation. Both sides agree what a normal level of operating working capital looks like — most often a trailing twelve-month average, sometimes adjusted for seasonality or known growth — and that becomes the target the seller must deliver on the closing balance sheet.
After closing, the parties prepare a closing statement, compare actual delivered working capital to the peg, and settle. Deliver less and the purchase price is reduced; deliver more and it is increased. The mechanics are usually a true-up payment within sixty to ninety days, often with a dispute-resolution process involving an independent accountant if the parties disagree.
How the peg is calculated matters more than where it lands. Whether deferred revenue counts, whether obsolete inventory is written down first, whether the average uses twelve months or three, and whether growth in the business is reflected — each of those choices can move the settlement by more than the negotiation over the peg number itself.
Where sellers get caught
- Agreeing a peg in the LOI before anyone has calculated the trailing average.
- Accepting a peg built from a seasonal high point.
- Ignoring the definition. Two parties can agree on "the twelve-month average" and mean materially different things.
Common questions
When is the peg usually set?
Often loosely in the LOI and precisely during diligence, once the buyer's accountants have monthly balance sheets. Sellers who wait until then to think about it have less leverage than sellers who modelled it earlier.
What happens if we disagree on the closing calculation?
The purchase agreement normally names a process: a review period, a formal objection, then an independent accounting firm whose determination binds both sides. Read that clause before you sign it.
Related terms
Net working capital
Current assets less current liabilities, excluding cash and debt — the operating fuel a buyer expects to be delivered with the business.
Enterprise value
The value of the business itself, independent of how it is financed — and not the amount the seller receives.
Letter of intent
A mostly non-binding document setting out the proposed price, structure, and process, whose binding provisions typically cover exclusivity and confidentiality.
Due diligence
The buyer's post-LOI investigation of the business, covering financial, legal, commercial, tax, and operational matters.
Guides that use this term
Where working capital peg comes up in a real sale, and what it changes.
Last reviewed 2026-08-25. General information for business owners, not legal, tax, or financial advice — terms, thresholds, and tax treatment vary by jurisdiction and by deal.