Most owners negotiate the multiple hard and the working capital peg not at all, usually because nobody explained that the peg is a price term. It moves real dollars at close, dollar for dollar, and the buyer's side understands that arithmetic much better than most sellers do.
What the peg is
Deals are done cash-free, debt-free: you keep the cash, you pay off the debt, and you hand over the business with a "normal" level of working capital, the receivables, inventory, and payables the company needs to operate. The peg is the number the parties agree counts as normal, typically set from a trailing 12-month average.
At close, actual working capital gets measured against the peg. Deliver less and the purchase price drops by the shortfall, dollar for dollar. Deliver more and you funded the buyer's balance sheet with money you could have kept. Either way, the peg decides who owns a chunk of seven-figure value, and it gets negotiated in the exhausted final weeks when attention is scarce.
Where sellers get hurt
Seasonality against the close date. A trailing average includes your working capital peak. Close in your seasonal trough and you can be measured against a peg the business does not carry in that month. Distributors and project businesses get caught by this constantly.
A peg set off your sloppiest year. If receivables were bloated and inventory was heavy during the measurement window, the bloat becomes the standard you must deliver. Your own slow collections get written into the contract.
Definition games. Whether the aged receivables count, how obsolete inventory is valued, which accruals are working capital versus debt-like items. Each definition is worth real money, and each gets decided in a schedule most sellers skim.
The 12-month runway
The peg is set from history, which means you can improve the history, and the window for doing it is the year before you go to market.
Tighten collections, right-size the inventory tail, stretch payables to terms actually agreed. A business that runs leaner through the measurement window sets a leaner peg, keeps the released cash at close, and presents the working capital discipline a QoE team reads as management quality. The same work that funds the business today lowers the bar you must clear at close. It is one of the few places in a sale where the same effort pays twice.
Then negotiate the mechanics like the price term it is: the measurement window, the treatment of seasonality, the definitions schedule, and a collar if the business swings.
The peg is one of the seven numbers a buyer has modeled before the LOI ever arrives. If a sale is anywhere on your two-year horizon, the working capital work starts now, not in diligence. Start a conversation and we will size what the peg would cost you today.