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Key takeaways
- Agree on account definitions before comparing the peg with closing balances.
- Use consistent accounting rules for the historical target and delivered working capital.
- Model post-closing liquidity separately from the purchase-price adjustment.
Why does the definition matter in a senior care sale?
Care businesses pay staff and other operating costs on a schedule that may differ from collections. The parties need to agree which operating assets and obligations move with the business. A peg can help make that agreement measurable, but only if the accounts and accounting rules are clear.
A negotiated peg is a transaction convention, not an SBA program limit or an IRS-prescribed percentage. SBA materials identify working capital as a possible financing use; they do not set the closing target for every acquisition. (Source: SBA 7(a), retrieved 2026)
How should a buyer read the supporting schedule?
Check whether receivables, trade payables, payroll accruals, prepayments and other items are included. Identify debt-like items, refundable deposits and restricted funds that may require separate treatment. Reconcile each balance to a ledger and supporting schedule; reliable records are essential to understanding business income and expenses. (Source: IRS recordkeeping)
Then ask how the target was derived. A single reporting date can be distorted by payroll timing or unusual collections. The parties should use a justified method and apply the same principles at closing.
What does an illustrative adjustment show?
Imagine a fictional agreement with a $120,000 peg and $110,000 of delivered working capital under its definitions. If the agreement uses a dollar-for-dollar adjustment, the $10,000 shortfall would reduce the price. Those invented values illustrate a contract mechanism, not a senior care benchmark.
The buyer might still need additional operating cash. The adjustment and the cash forecast serve different purposes. A post-closing price change may also need tax reporting review under the applicable rules. (Source: IRS Form 8594 instructions)
What should be discussed before the offer?
Ask which accounts move, how collectibility is measured, who prepares the estimate, when the true-up occurs and how disputes are resolved. Bring those questions to the commercial discussion with Jason Taken and the parties’ accounting and legal advisers.
Frequently asked questions
Is the peg a fixed percentage of revenue?
Not universally. It should be negotiated using the business’s actual balances, operating cycle and agreed account definitions.
Does working capital always include cash?
No. The agreement determines the calculation. A cash-free transaction may still have a working-capital adjustment.
Can doubtful receivables inflate delivered working capital?
They can if collectibility and allowance rules are omitted or applied inconsistently. Review the supporting aging and subsequent collections.
Who should review the calculation?
The buyer’s and seller’s accounting advisers should review the schedule and counsel should make sure the agreement describes the intended method and dispute process.
Sources
Sources are dated to distinguish current guidance from earlier publications. They support the identified facts; the transaction questions and examples are educational analysis.
- IRS: business recordkeeping (2026). Retrieved September 5, 2026.
- IRS: Form 8594 instructions (2021). Retrieved September 5, 2026.
- SBA: 7(a) loans (2026). Retrieved September 5, 2026.