Acquisitions
Working Capital Peg & True-Up Calculator
The adjustment that quietly moves hundreds of thousands of dollars after the handshake. The buyer expects to receive the business with a normal amount of working capital in it. Deliver more than the peg and the seller is owed money; deliver less and the seller writes a cheque back — often months after closing.
Inputs
- Headline purchase price
- Working capital peg (average monthly balance)
- Estimated working capital at close
- Actual working capital at final determination
- Collar (either side of the peg)
How to use this calculator
- Enter the headline price and the working capital peg. The peg is the normal level of working capital the buyer expects to find in the business, usually an average of recent monthly balances.
- Enter the estimated balance at close. The parties settle on this a few days before closing, and the price paid on the day moves by the difference from the peg.
- Enter the actual balance once the final determination is agreed, typically sixty to ninety days later, and set the collar if the agreement has one.
- Read the direction carefully: deliver more working capital than the peg and the seller is owed money; deliver less and the seller pays it back. The true-up is the difference between what was settled at close and what the final numbers say.
- Before you sign, run your worst realistic month as the actual balance. That is the cheque you might have to write after you have already spent the proceeds.
What each term means
- Working capital
- Current assets minus current liabilities, usually receivables plus inventory minus payables, with cash and debt excluded. The exact definition is negotiated and it matters more than the number.
- Peg (target working capital)
- The agreed normal level the business should carry at close, typically an average of the trailing twelve months to smooth out seasonality.
- Estimated closing statement
- The seller's good-faith estimate delivered shortly before close. The price paid on the day adjusts against it.
- Final determination
- The post-close true-up, usually sixty to ninety days later, when the actual balance is calculated and agreed or disputed.
- True-up
- The cash payment settling the difference between the estimate used at close and the final agreed number.
- Collar
- A band around the peg inside which no adjustment is made, so small ordinary-course movements do not trigger a payment. Some deals have none.
- Cash-free debt-free
- The common convention where the seller keeps the cash and clears the debt, so the working capital adjustment covers only the operating balances.
Educational disclaimer: Outputs are simplified educational estimates built from the numbers you enter — they are not financial, legal, tax, or investment advice, and real decisions deserve verified figures and qualified professionals.