A sale price on paper is not always the cash you take home. In many acquisitions – especially cash-free, debt-free deals – the headline number agreed at signing moves after completion.
That is where the working capital peg matters. It is not just a side note for the accountants; it is the primary financial check that protects both buyer and seller from handing over a business in an unfair state.
If you are selling your business in the UK, ignoring the peg until the final hour is a dangerous game. Here is what a working capital peg actually is, how it moves your final payout, and how to defend your value.
Preparing for an exit? Don’t let a buyer chip away at your valuation. Book a free Strategy Call with Consult EFC to ensure your balance sheet is exit-ready.
What a working capital peg actually is
A working capital peg is the target level of net working capital the business must deliver at completion.
Net working capital usually means current assets (like trade debtors and stock) minus current liabilities (like trade creditors and accrued costs).
If the business arrives at completion with that “normal” level intact, the agreed sale price holds. If it arrives above or below that level, the price changes.
The crucial difference between working capital and cash
Working capital is not the same as cash in the bank. Cash is usually stripped out for the seller in a cash-free, debt-free deal, but the buyer still expects the business to have enough fuel (stock and receivables) to trade smoothly on day one.
A business can show excellent profit margins but still arrive short of working capital if receivables are slow to collect, stock is dangerously thin, or suppliers have been paid unusually early.
Why buyers and sellers must agree on a peg
The peg sets a fair handover point. It says, in simple terms: “This is what normal looks like.”
Without that target, either side can game the system. A seller might chase collections aggressively, run down stock, or delay supplier payments to extract cash before completion. A buyer would then inherit a business that looks fine on paper but needs an immediate cash injection to survive.
The Golden Rule: The headline valuation is only the starting point. The working capital adjustment dictates the final cheque.
How the peg changes the final deal price
Most deals compare the peg with the actual working capital delivered on completion, then adjust the price through completion accounts. That process is often called a true-up.
In the current UK market, buyers remain selective and disciplined on price. That makes working capital adjustments more important, not less.
When the final price goes up
If the peg is £500,000 and the business delivers £650,000 of agreed working capital, the seller may receive a £150,000 uplift. The logic is simple. The buyer has received more trading capital than expected.
That extra amount can support growth, cover supplier payments, or reduce the buyer’s need to inject cash after completion.
When the final price goes down
If the same business delivers only £400,000, the buyer will usually claim a £100,000 reduction. That may come off the price at completion or be repaid later, depending on the deal terms.
This is where sellers get caught out. The headline number may look strong, but weak working capital at completion can cut sale proceeds fast.
Related Resource: Wondering what else buyers look for? Read our complete guide to Vendor Due Diligence for UK Founders.
Why a small gap can still matter
A gap of £75,000 or £100,000 may not sound dramatic in a multi-million pound deal. Yet for an SME owner, that money can shape what happens next.
It may affect tax planning, debt repayment, earn-out pressure, or the capital available for the founder’s next business. Small adjustments often feel large when the money becomes personal.
How the peg is normally set in an acquisition
The peg is usually negotiated, not guessed. Buyers want evidence of what “normal” working capital looks like in the ordinary course of trade.
That is why this figure often gets more debate than owners expect.
Using past accounts to find a normal level
Advisers usually review at least 12 months of monthly data, and often more. They look for a fair average and then strip out one-off items, unusual payments, and timing spikes that would distort the picture.
A good peg should reflect normal trading, not a lucky month or a messy year-end cut-off.
Why seasonality and timing can distort the number
Seasonality can make a simple average misleading. A retailer may carry more stock before Christmas. A project-led business may build up debtors around invoice milestones. A SaaS company may collect annual subscriptions in advance and show a very different working capital shape.
Because of that, the peg should match the expected completion date and the real trading cycle.
What buyers usually want, and what sellers push back on
Buyers often argue for a higher peg because it gives them more comfort after completion. Sellers push for a lower peg because it protects proceeds.
Neither side is always right. The best outcome usually comes from evidence, not pressure. If the numbers are clean and the trading pattern is clear, the negotiation becomes far easier.
The deal terms that can make or break the adjustment
The peg matters, but the legal drafting around it matters almost as much. Two deals can use the same peg and still produce different price outcomes because the definitions differ.
What gets included and excluded from working capital
Not every balance sheet item belongs in the calculation. Cash and debt are often carved out in a cash-free, debt-free deal. Tax balances, intercompany items, director loans, exceptional prepayments and old provisions may also be excluded or treated separately.
If the SPA is vague, disputes start after completion, when positions harden and legal cost rises.
How collars, buffers, and dispute rules protect both sides
Some deals include a small tolerance band. That stops a £10,000 difference becoming a full argument. Clear timelines, review rights and expert determination clauses also help.
These terms keep the process practical. They also reduce the chance that a modest accounting point turns into a costly fight.
Why completion accounts need clean data
Poor bookkeeping makes every peg harder to agree. Weak month-end reporting, stale balance sheet reconciliations and unexplained journals create doubt, and doubt usually hurts the seller.
Buyers trust numbers that tie back to clear records. Sellers should want the same standard before going to market.
How UK SMEs can avoid nasty surprises before signing a deal
Good preparation protects your business valuation. It gives you total control over the financial story buyers tell themselves about your company.
Keep debtor days, stock, and payables under control
Late collections, excess stock and erratic supplier payments all affect working capital. Better discipline now can support a stronger peg later.
It also shows the buyer that the business is well run, not dressed up for sale.
Clean up the balance sheet before due diligence starts
Old credits, unreconciled items, doubtful debtors and strange accruals can all distort the peg. Sellers should review them early and fix what can be fixed.
That work is not cosmetic. It can stop an avoidable price chip.
Build a case for a fair peg with real numbers
A seller’s view of “normal” only carries weight if the data supports it. Monthly reporting, historic trends, seasonality analysis and clear explanations all help.
That is where solid finance support matters. A well-prepared case gives the buyer less room to force a cautious assumption.
This is exactly where Fractional CFO support pays for itself – by structuring your finances to withstand aggressive buyer due diligence.
Final Thoughts
A working capital peg can change what the seller receives, even when the headline valuation looks settled. In many deals, it is one of the last things that moves the price up or down.
Owners should treat the peg as a core value issue, not an accounting footnote. When it is understood early, defined properly and backed by clean numbers, there is far less room for surprise at completion.
Is your balance sheet ready for an exit? Get in touch with Consult EFC today to ensure your working capital is fully optimised and your valuation is protected.
Not sure where your business stands right now?
Book a free 30-minute call with Kish. Bring your numbers, your questions, or just your situation. You will leave with a clearer picture than you arrived with.
Book a Free Strategy Call
Over 12 years across Big Four audit, Investment Banking, and corporate advisory. Kish works with SaaS founders, tech companies, and ambitious UK SMEs from £1M to £50M in revenue on fundraising, valuations, exit planning, and financial strategy. ICAEW regulated. Big Four trained. Based in London.