One of the biggest surprises for sellers during the early stages of a potential sale is learning that buyers will retain their company’s accounts receivables. Most sellers have never considered this aspect of a transaction, and it can feel like they’re walking away with less than the purchase price they were offered. Here’s why that perception is a misconception.
What Is Net Working Capital and How Does AR Fit In?
To understand why buyers retain accounts receivables, it’s important to first understand Net Working Capital (NWC)The operational liquidity of a business, typically defined as current assets minus current liabilities. In staffing companies, NWC includes accounts receivable, prepaids, and security deposits on the asset side, and accrued payroll liabilities, accounts payable, and other short-term liabilities on the liability side.. NWC represents the operational liquidity of a business and is typically defined as current assets minus current liabilities.
For staffing companies, the components of NWC typically include current assets such as accounts receivables, prepaids, and security deposits, as well as current liabilities such as accrued payroll liabilities, accounts payable, and other short-term accrued liabilities.
Accounts receivablesMoney owed to a staffing company for services already delivered (e.g., hours worked by temporary employees that have been invoiced but not yet paid by the client). AR is typically the single largest component of net working capital in staffing companies. — money owed to the business for services already delivered — are one of the largest components of NWC in staffing companies. Buyers retain NWC, including AR, because it’s necessary for the business to continue operating seamlessly post-transaction.
Why Do Buyers Need to Retain Working Capital?
In an M&A transaction, buyers expect the business to come with a “normal” level of NWC — enough to maintain operations without disruption. How a “normal” level of NWC is determined is a separate topic, but the key reasons for retaining it are straightforward.
Operational continuity. Retaining AR allows the buyer to collect on receivables and use that cash to pay for ongoing expenses such as payroll, rent, and vendor payments. Some sellers view this as the buyer leveraging their own NWC to fund operations, which can feel like a financing mechanism, but it’s a necessary part of ensuring operational stability.
Fair valuation. The purchase price reflects the assumption that the business will include the necessary NWC to operate, meaning AR retention is already factored into the valuation and deal structure. If the seller were to retain AR, the buyer would reduce their offer accordingly.
Avoiding immediate cash injection. Without NWC, the buyer would need to inject additional funds into the business immediately after closing to cover day-to-day expenses. This additional capital requirement would effectively translate to additional purchase price to the seller — a wash either way.
It’s also important to note that the buyer does not disproportionately benefit from retaining AR. There will always be an ongoing AR balance while the business is active, ensuring liquidity for operations rather than a one-time gain for the buyer.
How Does This Look in Practice?
Hypothetical Example: ABC Staffing
Let’s say a staffing company, ABC Staffing, has the following financial profile:
The buyer offers $10 million assuming the company includes $500,000 in NWC. If the seller wanted to keep the AR, the buyer would adjust the purchase price downward to reflect the missing operational liquidity.
How Should Sellers Prepare for AR Retention?
While it’s understandable for sellers to feel that AR should remain with them after a sale, it’s important to see the bigger picture. Accounts receivables are part of the operational liquidity that ensures the buyer can seamlessly continue running the business post-transaction. By preparing for this reality and working with experienced advisors, sellers can maximize their transaction value and ensure a smooth and successful sale process.
At Momentum Advisory Partners, we take time to educate our clients on the not-so-obvious concepts of a transaction so there are no surprises. Given the complexities of NWC and how it’s treated, it’s one of the areas we spend the most time on with clients well in advance of a transaction. That’s why we consistently emphasize the importance of preparation before entering a sale process. It’s the only way to set realistic expectations.
AR retention is not a negotiating tactic — it’s fundamental to how staffing M&A transactions are structured. The purchase price already assumes a normal level of working capital is included. Understanding this early in the process prevents surprises and strengthens your negotiating position on the terms that actually matter.
Frequently Asked Questions
AR is part of the net working capital that the buyer needs to continue operating the business. The purchase price already factors in a normal level of NWC. If you retained AR, the buyer would reduce the purchase price by an equivalent amount, resulting in roughly the same net proceeds to you.
No. The buyer doesn’t disproportionately benefit from retaining AR. There will always be an ongoing AR balance while the business is active — it ensures operational liquidity, not a one-time windfall. Without NWC, the buyer would need to inject their own capital immediately, which would reduce the purchase price offered.
The “normal” NWC level is typically based on a trailing average of the company’s monthly NWC over a defined period (often 6–12 months). This is negotiated between buyer and seller, usually during the letter of intent or definitive purchase agreement phase. An experienced M&A advisor can help ensure the methodology used is fair and favorable.
Most purchase agreements include a NWC adjustment mechanism. If the actual NWC at closing exceeds the agreed-upon target, the seller typically receives the excess. If it falls short, the purchase price is adjusted downward. This true-up is usually calculated and settled within 60–90 days after closing.