A working capital peg is the agreed target level of net working capital (current assets minus current liabilities) a seller must leave in the business at closing. If actual working capital at close is above or below the peg, the price is adjusted dollar-for-dollar in a post-closing true-up.
How a true-up works
| Line | Amount |
|---|---|
| Agreed peg | $120,000 |
| Actual at close | $105,000 |
| Buyer credit (true-up) | $15,000 |
The seller delivered $15,000 short of the peg, so the buyer's price drops $15,000, enough working capital to run day one without an emergency cash injection.
Why it matters when buying a business
Without a peg, a seller can strip cash, collect receivables, and run down inventory before close, leaving you to fund operations out of pocket on day one. In SBA deals, needed working capital can sometimes be built into the loan, but the peg is what stops a nasty surprise. Nail it in the LOI.
