Knowing the working capital type

A buyer is going to look at historical monthly financial information to determine the characteristics of working capital. 

Working capital can fall into the following categories:

• Seasonal Working Capital - At the time of a sale, working capital can be very different than it was when negotiations began or when the LOI was executed. Is the anticipated closing date of the deal during your slow or busy period?
• Growth Working Capital - As the deal proceeds, working capital keeps growing.
• Negative Working Capital - With negative working capital, there are often more discussions about some or all the cash being left in the business at the time of the sale.
• Erratic Working Capital - Working capital targets are even more difficult to establish when historical information is erratic. In this case, you will need to provide support to determine what's considered a "normal" level.

Knowing the working capital type that your company exhibits will help you better predict what level should be required at closing.