An indicative estimate of the working capital number a buyer will negotiate against, worked out before they do it for you.
When a business sells, the price assumes a normal level of working capital comes with it. That level is called the peg. If you arrive at the table without one you can defend, the buyer sets it, and the difference comes straight off what you are paid.
This works out a provisional peg from twelve months of your own numbers: the trailing average, adjusted for seasonality, for anything non-operating sitting in the accounts, and for where the business is heading. You get the peg, the range around it, every adjustment shown line by line, and how your collection, payment and inventory days compare to this calculator's sector assumptions.
You will need twelve months of accounts receivable, accounts payable, inventory, other current assets and liabilities, revenue and gross margin. Have the spreadsheet open.
About fifteen minutes with the numbers in front of you. You can go back at any point.
Before you begin
The normal level of working capital that a sale price assumes comes with the business. If actual working capital at closing is below the peg, the price is reduced by the difference. It is one of the most commonly negotiated numbers in a deal and one of the least prepared for.
Usually as an average of monthly net working capital over the trailing twelve months, adjusted for seasonality, for anything non-operating sitting in the accounts, and for where the business is heading. Each of those adjustments is negotiable, which is why documentation matters more than the arithmetic.
Because the price assumes the business comes with enough working capital to keep running. If you draw cash out before closing, or if the peg is set high, the shortfall comes off the price pound for pound. It is a direct transfer, not a valuation adjustment.
Days sales outstanding is how long customers take to pay you. Days payable outstanding is how long you take to pay suppliers. Days inventory outstanding is how long stock sits before it sells. A buyer compares all three against what is normal for your sector and asks about anything unusual.
Balances sitting in the current accounts that have nothing to do with trading: money owed to or from you personally, loans to or from another company you own, money set aside for a legal dispute, or customer deposits for work that will not happen. A buyer will take these out, and it is better if you do it first.
If the business swings through the year, the working capital on the day you close may be well above or below the average. Buyers are aware of this and sometimes time closings accordingly. Documenting the seasonal pattern before a process is what lets you argue for the right measurement date.
A few of the questions and inputs you will see. Your answers and results stay in the diagnostic.
Use the Working Capital Peg Calculator to make a directional read of your business. This is not a lender quote, valuation opinion or commissioned diligence report.
Provide your details and work through monthly working-capital balances and deal context across the working-capital bridge. Allow about 20 minutes; your pace may vary.
Enter the figures you can evidence and review how a buyer could interpret the inputs and assumptions.
Read an indicative working-capital peg range. The output is indicative, not a formal quote or verified diligence opinion.
Review the recommended actions where gaps qualify. If no areas need remediation, maintain the evidence and revisit the read when your circumstances change.
Choose the next question you want to examine:
The peg is the normal level of working capital the price assumes comes with the business. This calculator estimates a provisional peg from your entries; it does not audit your records or predict what a buyer will accept.
Step One calculates each month's net working capital: accounts receivable plus inventory plus other operating current assets, less accounts payable and other operating current liabilities. The anchor is the simple average of the trailing twelve months (TTM), entered oldest first.
Step Two measures variation from your monthly working capital series and asks you to confirm or override it. If average working capital is zero but the monthly figures vary, the percentage ratio is undefined: the calculator classifies the series as severe and uses 100% only as a display value, not a measured variation. The seasonal adjustment compares the selected historical close-month balance, not a multi-year seasonal average, with the twelve-month average. The calculator weights that difference by the seasonality category and time to close. Overrides and disagreements are recorded in the trail.
Step Three calculates collection days (DSO) against annual revenue, and payment days (DPO) and stock days (DIO) against cost of goods. Cost of goods equals annual revenue multiplied by one minus your gross margin. If no margin is supplied, the disclosed sector default is a calculator assumption. Comparison ranges and margins across sectors are provisional calculator assumptions, not sourced industry norms or observed deal statistics. Sub-sector and business model do not change them.
Step Four removes actual non-operating balances supplied by you: asset removals reduce working capital and liability removals increase it. Unknown amounts remain flagged, not yet quantified. One-off flags pull the average toward the median by 35% of that gap per flag, capped at 100%; this is a disclosed heuristic calibrated to general market data and TEOL's frameworks, not the measured impact of those events. Revenue growth compares the average of the last three months with the first three months. The growth adjustment is linear: the signed TTM average working capital multiplied by the confirmed growth rate, or your override. This assumes working capital scales proportionally with revenue; for a negative average, positive growth produces a negative adjustment. It is not a forecast or annualised growth estimate.
Step Five adds the adjustments to the average for the midpoint. The range extends by at least 3% of the absolute midpoint on either side, widened by the seasonal spread when larger. This estimation floor is a calculator assumption, not a statistical confidence interval. Adjustments use a shared rounded value in the bridge and trail.
Step Six shows the gap between the unadjusted average and provisional midpoint for active transactions. This is a scenario comparison, not a measured loss or prediction of repricing.
The bridge shows each adjustment in either direction. The trail explains the arithmetic, supplied values and assumptions. Position bands and actions are based on your entries, not a review of supporting records.
The calculator is calibrated to general market data and TEOL's frameworks. Results are general guidance, not advice, and can contain errors. Use the ranges as prompts for discussion with your accountant and buyer, not as audited evidence or a guarantee of an agreed peg.