Working Capital Targets When Selling Your Nebraska Business: What Sellers Need to Know

When Nebraska business owners prepare to sell, they spend considerable time on financials, valuations, and marketing materials — but one critical concept often catches sellers off guard at the closing table: working capital. Understanding what working capital is, how buyers and lenders calculate it, and what a "normal" target looks like for your business can mean the difference between a smooth closing and a last-minute renegotiation that costs you tens of thousands of dollars.

What Is Working Capital and Why Does It Matter in a Business Sale?

Working capital is the difference between a business's current assets — primarily accounts receivable, inventory, and prepaid expenses — and its current liabilities, such as accounts payable and accrued expenses. In simple terms, it represents the liquid resources a business needs to operate day-to-day without interruption.

When a buyer acquires a business, they expect to receive a company that can continue operating normally from day one. That means the business needs to come with enough working capital "baked in" to pay suppliers, cover payroll, and fulfill customer orders without the new owner having to inject additional cash immediately after closing. This is why nearly every business sale agreement includes a working capital target — a negotiated amount of net working capital that the seller must deliver at closing.

If the actual working capital at closing falls below the agreed target, the seller typically owes the buyer a dollar-for-dollar adjustment. If it comes in above the target, the seller may receive additional proceeds. These post-closing adjustments can be significant, and sellers who don't understand the mechanics often feel blindsided.

How Working Capital Targets Are Set

Working capital targets are not arbitrary. They are typically calculated by looking at the business's historical working capital over a trailing period — often twelve months — and establishing a normalized average. This average becomes the "peg" or target that the seller must hit at closing.

The negotiation of the working capital target is one of the most technical parts of a business sale, and it happens during the letter of intent (LOI) or purchase agreement phase. Key considerations include:

Which accounts are included: Buyers and sellers must agree on exactly which balance sheet items count as current assets and current liabilities for purposes of the calculation. Cash is almost always excluded (it goes to the seller), and debt is typically excluded as well (the seller pays it off at closing).
Seasonality: Businesses with seasonal revenue cycles — common in Nebraska's agricultural services, landscaping, and construction sectors — may have working capital that swings dramatically throughout the year. A target based on a single month's snapshot can be misleading; a trailing twelve-month average is more representative.
Inventory valuation: For product-based businesses, how inventory is valued (FIFO, LIFO, or weighted average) affects the working capital calculation. Buyers often want inventory counted and valued at cost, not retail.
Accounts receivable aging: Buyers typically exclude receivables older than 90 days from the working capital calculation, since those are less likely to be collected. Sellers with a high proportion of aged receivables may find their effective working capital lower than expected.

Common Working Capital Pitfalls for Nebraska Sellers

Even experienced business owners can stumble on working capital issues. Here are the most common problems sellers encounter:

Stripping the business before closing: Some sellers, anticipating a large payout, slow down collections or delay restocking inventory in the months before closing. This can cause working capital to fall below the target and trigger a post-closing adjustment that reduces net proceeds.
Misunderstanding what "normalized" means: If your business had an unusually strong quarter right before the measurement period, the normalized target may be set higher than your typical operating level. Sellers should push for a longer measurement window to smooth out anomalies.
Ignoring accrued liabilities: Accrued vacation, bonuses, and other employee-related liabilities are often included in the working capital calculation as current liabilities. Sellers who haven't been accruing these properly may face a surprise reduction in their working capital figure.
Disputes over excluded items: Buyers and sellers sometimes disagree about whether certain items — customer deposits, deferred revenue, or related-party receivables — should be included or excluded. These disputes are easier to resolve before signing than after closing.

Hypothetical example: A Nebraska manufacturing business with $2.5 million in annual revenue agrees to a working capital target of $350,000 based on a trailing twelve-month average. In the three months before closing, the owner slows collections and draws down inventory. At closing, actual working capital is $280,000 — $70,000 below target. The seller receives $70,000 less at closing than anticipated.

How to Prepare for the Working Capital Conversation

The best time to think about working capital is well before you go to market — not after you've signed a letter of intent. Here's how Nebraska business owners can prepare:

Run a trailing twelve-month working capital analysis: Calculate your average monthly working capital over the past year. This gives you a realistic sense of what buyers will propose as a target and helps you anticipate the negotiation.
Clean up your balance sheet: Write off uncollectible receivables, dispose of obsolete inventory, and ensure your accrued liabilities are properly recorded. A clean balance sheet reduces the risk of disputes and makes your working capital calculation more predictable.
Maintain normal operating patterns: In the months leading up to closing, run the business as you normally would. Avoid the temptation to accelerate collections or delay payments in ways that distort your working capital position.
Engage your accountant early: Your CPA can help you model different working capital scenarios and identify any balance sheet items that could become points of contention during negotiations.
Work with an experienced broker: A business broker who has navigated working capital negotiations can help you understand what's reasonable for your industry, push back on aggressive buyer proposals, and structure the target in a way that protects your proceeds.

Working Capital in the Context of Your Overall Deal

Working capital is just one piece of the deal structure puzzle, but it's a piece that can have an outsized impact on your net proceeds if you're not prepared. Sellers who understand the mechanics going in are far better positioned to negotiate a fair target, maintain their business in a way that hits that target, and avoid post-closing surprises.

At Fairway Business Brokers, our team of brokers based in Omaha has guided Nebraska business owners through every stage of the sale process — including the technical working capital negotiations that can make or break a deal. If you're thinking about selling your Nebraska business and want to understand what a buyer will expect at the closing table, we're here to help.

Ready to start the conversation? Visit our seller page to learn more, or reach out directly to Kevin Kohler at [email protected]. You can also learn more about Fairway Business Brokers at fairwaybb.com.