What net working capital is
Net working capital (NWC) is the everyday operating liquidity of a business — broadly, current assets minus current liabilities, typically excluding cash and debt. Think accounts receivable and inventory on one side, accounts payable and accrued expenses on the other. It is the fuel that keeps the business running between the moment you spend and the moment you collect.
Why it shows up in your deal
Most transactions are done on a cash-free, debt-free basis with a normal level of working capital delivered at closing. To define “normal,” the parties set a working capital target (often called the peg) — usually an average of recent months.
Where sellers get surprised
Seasonality is the classic trap: sell after you have collected a big receivable and drawn down inventory, and your working capital may sit below the peg — costing you at the true-up. Understanding your working capital cycle before you set the peg protects your proceeds. This is technical, negotiable, and worth getting right with experienced advisors.