{"version":"1.0.0","segments":[{"startTime":0.0,"endTime":3.21,"body":"hello and welcome to another episode of"},{"startTime":1.319,"endTime":4.89,"body":"well-capitalized I'm your host Bobby"},{"startTime":3.21,"endTime":7.2,"body":"Kingsbury managing director at MCM"},{"startTime":4.89,"endTime":9.09,"body":"Capital Partners and today we have with"},{"startTime":7.2,"endTime":13.019,"body":"me again Justin Thomas from Cohen \u0026"},{"startTime":9.09,"endTime":14.13,"body":"Company diving deep into a major topic"},{"startTime":13.019,"endTime":15.99,"body":"with business owners and entrepreneurs"},{"startTime":14.13,"endTime":18.09,"body":"in working capital"},{"startTime":15.99,"endTime":19.529,"body":"so Justin thank you very much for taking"},{"startTime":18.09,"endTime":21.15,"body":"the time yeah thanks for having me yeah"},{"startTime":19.529,"endTime":24.15,"body":"and for the viewers who haven't watched"},{"startTime":21.15,"endTime":26.13,"body":"one of our videos prior with you can you"},{"startTime":24.15,"endTime":28.949,"body":"give a little bit of background on Cohen"},{"startTime":26.13,"endTime":30.39,"body":"in yourself sure Justin Thomas I'm the"},{"startTime":28.949,"endTime":32.94,"body":"partner in charge of our transactional"},{"startTime":30.39,"endTime":34.26,"body":"services practice at Cohen company which"},{"startTime":32.94,"endTime":36.69,"body":"is the group within the firm that"},{"startTime":34.26,"endTime":38.61,"body":"specializes in performing due diligence"},{"startTime":36.69,"endTime":40.71,"body":"for our clients going through a"},{"startTime":38.61,"endTime":41.19,"body":"transaction either on the buy side or"},{"startTime":40.71,"endTime":44.82,"body":"the sell side"},{"startTime":41.19,"endTime":48.03,"body":"so with this topic it's come up even in"},{"startTime":44.82,"endTime":52.8,"body":"in diligence videos from legal and bank"},{"startTime":48.03,"endTime":55.14,"body":"and then some owner interviews and you"},{"startTime":52.8,"endTime":57.75,"body":"know working capital kind of seems to be"},{"startTime":55.14,"endTime":59.67,"body":"this this topic that maybe a lot of"},{"startTime":57.75,"endTime":62.129,"body":"business owners don't understand or"},{"startTime":59.67,"endTime":65.64,"body":"don't know how it would affect them so I"},{"startTime":62.129,"endTime":68.51,"body":"think first can we just really define"},{"startTime":65.64,"endTime":70.77,"body":"working capital and and what it is sure"},{"startTime":68.51,"endTime":74.549,"body":"working capital in particular and how we"},{"startTime":70.77,"endTime":76.89,"body":"think of it in a transaction is very"},{"startTime":74.549,"endTime":78.63,"body":"very simply put just the net of your"},{"startTime":76.89,"endTime":80.759,"body":"current assets and your current"},{"startTime":78.63,"endTime":84.15,"body":"liabilities in the business all right so"},{"startTime":80.759,"endTime":87.03,"body":"it's the it's the near term net calls on"},{"startTime":84.15,"endTime":88.619,"body":"cash so that's why we don't include cash"},{"startTime":87.03,"endTime":90.869,"body":"in that calculation but it's the things"},{"startTime":88.619,"endTime":93.15,"body":"in the near future that are gonna"},{"startTime":90.869,"endTime":95.189,"body":"convert to cash like your AR in your"},{"startTime":93.15,"endTime":97.14,"body":"inventory and then the things that"},{"startTime":95.189,"endTime":98.909,"body":"should be a draw on cash in the near"},{"startTime":97.14,"endTime":101.61,"body":"future like your payables and accrued"},{"startTime":98.909,"endTime":103.29,"body":"expenses and so it's just setting an"},{"startTime":101.61,"endTime":105.36,"body":"understanding of kind of where the"},{"startTime":103.29,"endTime":108.149,"body":"business is from a standpoint of kind of"},{"startTime":105.36,"endTime":110.61,"body":"the net of those two items yeah and"},{"startTime":108.149,"endTime":113.82,"body":"sometimes what we see in negotiation so"},{"startTime":110.61,"endTime":117.06,"body":"we spell it out in a letter of intent to"},{"startTime":113.82,"endTime":118.56,"body":"truly define exactly what what working"},{"startTime":117.06,"endTime":121.649,"body":"capital is do you think that's important"},{"startTime":118.56,"endTime":123.509,"body":"for a business owner and in their"},{"startTime":121.649,"endTime":125.64,"body":"negotiations I do I think I actually"},{"startTime":123.509,"endTime":127.42,"body":"think it's important and beneficial for"},{"startTime":125.64,"endTime":131.02,"body":"both sides of the transaction"},{"startTime":127.42,"endTime":132.52,"body":"to understand the nuances of exactly"},{"startTime":131.02,"endTime":135.52,"body":"what we're going to call working capital"},{"startTime":132.52,"endTime":137.52,"body":"for purposes of the transaction so I"},{"startTime":135.52,"endTime":139.569,"body":"just give a general definition but"},{"startTime":137.52,"endTime":141.64,"body":"ultimately when you get to the end of a"},{"startTime":139.569,"endTime":144.25,"body":"transaction and you're defining working"},{"startTime":141.64,"endTime":146.23,"body":"capital in a contract for purposes of"},{"startTime":144.25,"endTime":149.53,"body":"how it may or may not affect your"},{"startTime":146.23,"endTime":151.989,"body":"purchase price identifying specific"},{"startTime":149.53,"endTime":154.12,"body":"accounts and balances that are going to"},{"startTime":151.989,"endTime":156.55,"body":"be part of that measurement or not is"},{"startTime":154.12,"endTime":158.47,"body":"very important so I think it's just a"},{"startTime":156.55,"endTime":161.41,"body":"best practice for everybody to spell"},{"startTime":158.47,"endTime":163.269,"body":"that out in as much detail as you can so"},{"startTime":161.41,"endTime":165.1,"body":"again everybody's singing from the same"},{"startTime":163.269,"endTime":168.16,"body":"hymnal when it goes when it comes time"},{"startTime":165.1,"endTime":170.35,"body":"to close and so in talking about that a"},{"startTime":168.16,"endTime":172.12,"body":"little further you know in in a contract"},{"startTime":170.35,"endTime":174.97,"body":"then is it really so working capital"},{"startTime":172.12,"endTime":177.01,"body":"what about indebtedness I need to find"},{"startTime":174.97,"endTime":178.54,"body":"it indebtedness yeah you know maybe we"},{"startTime":177.01,"endTime":181.15,"body":"take a step back and look at the whole"},{"startTime":178.54,"endTime":183.25,"body":"concept and how it affects a sellers"},{"startTime":181.15,"endTime":186.4,"body":"ultimate purchase price in cash they"},{"startTime":183.25,"endTime":188.95,"body":"receive so obviously in a transaction"},{"startTime":186.4,"endTime":190.72,"body":"the big number is the headline purchase"},{"startTime":188.95,"endTime":192.04,"body":"price you know again for sake of"},{"startTime":190.72,"endTime":194.079,"body":"argument just say it's 20 million"},{"startTime":192.04,"endTime":195.82,"body":"dollars right and that's clearly what"},{"startTime":194.079,"endTime":198.04,"body":"most people are focused on and what most"},{"startTime":195.82,"endTime":200.94,"body":"of the due diligence process whether it"},{"startTime":198.04,"endTime":206.62,"body":"be financial tax legal whatever is is"},{"startTime":200.94,"endTime":209.709,"body":"structure around confirming but the the"},{"startTime":206.62,"endTime":214.03,"body":"key point to keep in mind is that value"},{"startTime":209.709,"endTime":216.459,"body":"so that that offer price is almost"},{"startTime":214.03,"endTime":219.19,"body":"always defined as a what we call a cash"},{"startTime":216.459,"endTime":221.38,"body":"free debt free price right so what that"},{"startTime":219.19,"endTime":222.94,"body":"means that the business owner is I'm"},{"startTime":221.38,"endTime":225.76,"body":"gonna give you 20 million dollars for"},{"startTime":222.94,"endTime":227.65,"body":"this business you keep any of the cash"},{"startTime":225.76,"endTime":230.019,"body":"that you've accumulated up until closing"},{"startTime":227.65,"endTime":233.89,"body":"but you're also responsible for all the"},{"startTime":230.019,"endTime":238.0,"body":"debt and that becomes important because"},{"startTime":233.89,"endTime":240.73,"body":"as a seller realizes that they may be"},{"startTime":238.0,"endTime":242.98,"body":"incentivized to play with their working"},{"startTime":240.73,"endTime":246.22,"body":"capital to maximize the amount of cash"},{"startTime":242.98,"endTime":248.47,"body":"they have on hand at closing right you"},{"startTime":246.22,"endTime":251.019,"body":"know a a seller may do something like"},{"startTime":248.47,"endTime":253.69,"body":"say hey I'm gonna give all my customers"},{"startTime":251.019,"endTime":256.299,"body":"a 10% discount if they pay all their AR"},{"startTime":253.69,"endTime":258.13,"body":"right now just to kind of get all that"},{"startTime":256.299,"endTime":259.9,"body":"cash in the door so they can keep it and"},{"startTime":258.13,"endTime":261.67,"body":"obviously as a buyer you don't want that"},{"startTime":259.9,"endTime":262.78,"body":"to happen because then all of a sudden"},{"startTime":261.67,"endTime":265.03,"body":"you know you've just paid twenty million"},{"startTime":262.78,"endTime":266.47,"body":"dollars for a business and then you take"},{"startTime":265.03,"endTime":268.45,"body":"it over and you you see you've got no"},{"startTime":266.47,"endTime":269.92,"body":"receivables and so you've got no cash"},{"startTime":268.45,"endTime":271.99,"body":"coming in the door for the first 30 days"},{"startTime":269.92,"endTime":273.67,"body":"and you have cash outlays yeah so you"},{"startTime":271.99,"endTime":274.87,"body":"need to fund another million dollars on"},{"startTime":273.67,"endTime":278.38,"body":"top of the twenty million dollars you"},{"startTime":274.87,"endTime":280.87,"body":"just you just spent so because of that"},{"startTime":278.38,"endTime":284.5,"body":"dynamic of the deal being cash redead"},{"startTime":280.87,"endTime":287.14,"body":"free over time again it's become just"},{"startTime":284.5,"endTime":290.43,"body":"accepted in the market that will also"},{"startTime":287.14,"endTime":293.8,"body":"have a target working capital so that"},{"startTime":290.43,"endTime":296.71,"body":"ultimately is in place to make sure that"},{"startTime":293.8,"endTime":298.9,"body":"nothing irregular happens worth with the"},{"startTime":296.71,"endTime":301.12,"body":"working capital balances between the"},{"startTime":298.9,"endTime":304.72,"body":"time of initial negotiation on price and"},{"startTime":301.12,"endTime":307.51,"body":"the closing so the way that is that's"},{"startTime":304.72,"endTime":309.46,"body":"done is to come to an agreement between"},{"startTime":307.51,"endTime":311.11,"body":"buyer and seller and again all of this"},{"startTime":309.46,"endTime":312.49,"body":"is an agreement that evolved over the"},{"startTime":311.11,"endTime":314.98,"body":"course of the transaction and is"},{"startTime":312.49,"endTime":317.32,"body":"codified in the purchase agreement so"},{"startTime":314.98,"endTime":319.45,"body":"come to an agreement over what the right"},{"startTime":317.32,"endTime":321.43,"body":"level of working capital to be in the"},{"startTime":319.45,"endTime":324.28,"body":"business that closing is right so that"},{"startTime":321.43,"endTime":327.58,"body":"that means hey I as the buyer you as the"},{"startTime":324.28,"endTime":330.1,"body":"seller are both comfortable that with"},{"startTime":327.58,"endTime":332.23,"body":"the value we've stated it being cash"},{"startTime":330.1,"endTime":333.85,"body":"free dead free if we have about this"},{"startTime":332.23,"endTime":336.46,"body":"much working capital in the business"},{"startTime":333.85,"endTime":338.8,"body":"everybody thinks it's a good deal if"},{"startTime":336.46,"endTime":340.78,"body":"when we close there's more than that"},{"startTime":338.8,"endTime":343.45,"body":"working capital left in the business the"},{"startTime":340.78,"endTime":346.66,"body":"owner generally keeps that difference if"},{"startTime":343.45,"endTime":348.19,"body":"there's less the owner receives less"},{"startTime":346.66,"endTime":350.23,"body":"cash a closed to make up for that"},{"startTime":348.19,"endTime":353.38,"body":"difference and it's all the way just"},{"startTime":350.23,"endTime":356.2,"body":"kind of keep connected the value of the"},{"startTime":353.38,"endTime":358.51,"body":"headline price the concept of the cash"},{"startTime":356.2,"endTime":361.9,"body":"free debt-free and the working capital"},{"startTime":358.51,"endTime":364.0,"body":"mechanism being another lever to make"},{"startTime":361.9,"endTime":366.7,"body":"sure that you know the cash free debt"},{"startTime":364.0,"endTime":368.89,"body":"free nature of the transaction you know"},{"startTime":366.7,"endTime":371.49,"body":"is it taken advantage of by either side"},{"startTime":368.89,"endTime":373.54,"body":"right and then as we get into"},{"startTime":371.49,"endTime":374.14,"body":"negotiations and usually in the letter"},{"startTime":373.54,"endTime":378.58,"body":"of intent"},{"startTime":374.14,"endTime":380.92,"body":"we are not necessarily defining a number"},{"startTime":378.58,"endTime":382.75,"body":"but we're looking at you know the"},{"startTime":380.92,"endTime":384.49,"body":"trailing 12-month average nine month"},{"startTime":382.75,"endTime":384.97,"body":"average or six month average you know"},{"startTime":384.49,"endTime":388.3,"body":"what"},{"startTime":384.97,"endTime":391.96,"body":"what's market to today yeah"},{"startTime":388.3,"endTime":394.72,"body":"it varies I think the thing we see most"},{"startTime":391.96,"endTime":397.51,"body":"often is a 12 month average"},{"startTime":394.72,"endTime":400.48,"body":"and for if you're a steady-state"},{"startTime":397.51,"endTime":401.92,"body":"business you know you obviously probably"},{"startTime":400.48,"endTime":405.4,"body":"have some growth in the business but if"},{"startTime":401.92,"endTime":406.81,"body":"it's a normal level of growth I think"},{"startTime":405.4,"endTime":409.66,"body":"the thing we would generally see as a"},{"startTime":406.81,"endTime":412.51,"body":"12-month average of those balances now"},{"startTime":409.66,"endTime":415.3,"body":"if you're in a very high-growth type of"},{"startTime":412.51,"endTime":416.68,"body":"business where you know you would expect"},{"startTime":415.3,"endTime":419.02,"body":"the working capital needs of the"},{"startTime":416.68,"endTime":421.18,"body":"business to be accelerating just because"},{"startTime":419.02,"endTime":423.1,"body":"sales are growing so fast you might look"},{"startTime":421.18,"endTime":424.84,"body":"at a shorter term like say the last"},{"startTime":423.1,"endTime":426.4,"body":"three months or six months because"},{"startTime":424.84,"endTime":427.84,"body":"that's just gonna be more representative"},{"startTime":426.4,"endTime":433.69,"body":"of what the business is going to be at"},{"startTime":427.84,"endTime":436.06,"body":"closing how does that then affect I was"},{"startTime":433.69,"endTime":437.95,"body":"working capital affected by a seasonal"},{"startTime":436.06,"endTime":440.32,"body":"business you know we owned the you know"},{"startTime":437.95,"endTime":441.76,"body":"a garage-door part Smith manufactured"},{"startTime":440.32,"endTime":444.37,"body":"there pretty steady state but in"},{"startTime":441.76,"endTime":446.23,"body":"generally in September October November"},{"startTime":444.37,"endTime":447.64,"body":"they see a spike in business"},{"startTime":446.23,"endTime":449.35,"body":"specifically because people are getting"},{"startTime":447.64,"endTime":452.52,"body":"ready for for the winter we own a"},{"startTime":449.35,"endTime":455.08,"body":"company in Arizona that manufactures"},{"startTime":452.52,"endTime":458.02,"body":"wrought iron security doors an entry"},{"startTime":455.08,"endTime":460.54,"body":"doors and in Arizona the slow season is"},{"startTime":458.02,"endTime":464.53,"body":"in the summer because it's so hot so I"},{"startTime":460.54,"endTime":467.83,"body":"you know how do seasonal businesses get"},{"startTime":464.53,"endTime":469.42,"body":"around the working cabin yeah so there's"},{"startTime":467.83,"endTime":471.31,"body":"there's several ways I think that we've"},{"startTime":469.42,"endTime":475.36,"body":"seen people handle those types of"},{"startTime":471.31,"endTime":478.36,"body":"businesses you know one way is rather"},{"startTime":475.36,"endTime":481.69,"body":"than use an average method you might say"},{"startTime":478.36,"endTime":484.65,"body":"okay we know there are other certain"},{"startTime":481.69,"endTime":487.48,"body":"metrics at play again given the"},{"startTime":484.65,"endTime":488.95,"body":"anticipated timing of closing that would"},{"startTime":487.48,"endTime":492.88,"body":"say okay if I'm going to close in the"},{"startTime":488.95,"endTime":496.12,"body":"summer month I know that then generally"},{"startTime":492.88,"endTime":498.46,"body":"my working capital is lower so to set a"},{"startTime":496.12,"endTime":499.919,"body":"target at a very high level is probably"},{"startTime":498.46,"endTime":503.29,"body":"unfair to the business owner because"},{"startTime":499.919,"endTime":505.48,"body":"that's not what would normally be there"},{"startTime":503.29,"endTime":507.58,"body":"at that time conversely if you were to"},{"startTime":505.48,"endTime":510.4,"body":"close in the busy season to have an"},{"startTime":507.58,"endTime":511.87,"body":"abnormally low working capital target"},{"startTime":510.4,"endTime":514.75,"body":"and say well I'm gonna pay you just"},{"startTime":511.87,"endTime":516.219,"body":"because we closed at your busy season"},{"startTime":514.75,"endTime":518.08,"body":"doesn't really make a lot of sense"},{"startTime":516.219,"endTime":519.94,"body":"either so sometimes you can use other"},{"startTime":518.08,"endTime":522.099,"body":"metrics like well sometimes the working"},{"startTime":519.94,"endTime":523.96,"body":"capital is relatively consistent as a"},{"startTime":522.099,"endTime":526.39,"body":"percent of sales you know so you can"},{"startTime":523.96,"endTime":527.8,"body":"look forward to the forecast sales for"},{"startTime":526.39,"endTime":528.04,"body":"the three months leading up to closing"},{"startTime":527.8,"endTime":531.16,"body":"and"},{"startTime":528.04,"endTime":532.63,"body":"use a formula like that to come to a"},{"startTime":531.16,"endTime":534.13,"body":"target it doesn't always have to be a"},{"startTime":532.63,"endTime":535.509,"body":"historical average so there's other"},{"startTime":534.13,"endTime":537.82,"body":"things that can be more indicative of"},{"startTime":535.509,"endTime":540.25,"body":"the business when it's actually going to"},{"startTime":537.82,"endTime":544.6,"body":"close the verses in average and you know"},{"startTime":540.25,"endTime":546.04,"body":"honestly sometimes or other if if you do"},{"startTime":544.6,"endTime":548.35,"body":"have a seasonal business folks will"},{"startTime":546.04,"endTime":551.199,"body":"still go with a an average from time to"},{"startTime":548.35,"endTime":554.019,"body":"time and and just kind of roll the dice"},{"startTime":551.199,"endTime":557.29,"body":"on when it closes and who benefits and"},{"startTime":554.019,"endTime":558.699,"body":"who doesn't right and we had talked"},{"startTime":557.29,"endTime":560.68,"body":"about this a little bit or through some"},{"startTime":558.699,"endTime":562.3,"body":"some of your other answers but what what"},{"startTime":560.68,"endTime":566.23,"body":"I want to focus on for business owners"},{"startTime":562.3,"endTime":569.68,"body":"to is ultimately how does working"},{"startTime":566.23,"endTime":572.68,"body":"capital affect purchase price at the end"},{"startTime":569.68,"endTime":575.44,"body":"of the day yeah and maybe that's helpful"},{"startTime":572.68,"endTime":577.81,"body":"to go through an example you know and I"},{"startTime":575.44,"endTime":580.24,"body":"think we'll have a have a graphic up on"},{"startTime":577.81,"endTime":581.589,"body":"the video but you know I assume a"},{"startTime":580.24,"endTime":583.69,"body":"company is now say you're a"},{"startTime":581.589,"endTime":585.37,"body":"manufacturing company mm-hmm right so"},{"startTime":583.69,"endTime":587.139,"body":"you know as we think about the working"},{"startTime":585.37,"endTime":589.12,"body":"capital the primary components are going"},{"startTime":587.139,"endTime":591.519,"body":"to be your accounts receivable your"},{"startTime":589.12,"endTime":592.87,"body":"inventory balances you know maybe you've"},{"startTime":591.519,"endTime":594.699,"body":"got some prepaids those are usually"},{"startTime":592.87,"endTime":596.949,"body":"smaller numbers and then you've got"},{"startTime":594.699,"endTime":599.44,"body":"accounts payable and you've got your"},{"startTime":596.949,"endTime":602.139,"body":"accrued expenses so those are the things"},{"startTime":599.44,"endTime":603.01,"body":"that are going to make up the components"},{"startTime":602.139,"endTime":606.639,"body":"of working capital"},{"startTime":603.01,"endTime":608.47,"body":"so say at the table using an average and"},{"startTime":606.639,"endTime":611.019,"body":"over the 12-month average the net of all"},{"startTime":608.47,"endTime":615.13,"body":"those numbers is a hundred thousand"},{"startTime":611.019,"endTime":617.92,"body":"dollars and we come to to the closing"},{"startTime":615.13,"endTime":619.029,"body":"and generally what happens is you know"},{"startTime":617.92,"endTime":622.12,"body":"you come to the closing date then you"},{"startTime":619.029,"endTime":624.13,"body":"make an estimate and you know nobody"},{"startTime":622.12,"endTime":626.17,"body":"closes their books perfectly on a"},{"startTime":624.13,"endTime":628.24,"body":"certain date so you're usually given"},{"startTime":626.17,"endTime":629.86,"body":"time to actually close your books and"},{"startTime":628.24,"endTime":631.779,"body":"and define what the real working capital"},{"startTime":629.86,"endTime":634.93,"body":"is so we'll come back thirty sixty"},{"startTime":631.779,"endTime":636.579,"body":"whatever days later and ultimately we"},{"startTime":634.93,"endTime":638.319,"body":"find maybe you had a situation where"},{"startTime":636.579,"endTime":641.74,"body":"right before closing you had a really"},{"startTime":638.319,"endTime":642.639,"body":"big sale so that would maybe decrease"},{"startTime":641.74,"endTime":644.319,"body":"your inventory because you've just"},{"startTime":642.639,"endTime":645.639,"body":"shipped a bunch of product but you're"},{"startTime":644.319,"endTime":648.639,"body":"also getting margin on that product so"},{"startTime":645.639,"endTime":650.56,"body":"your AR has gone up more so all else"},{"startTime":648.639,"endTime":652.899,"body":"being equal with that one big"},{"startTime":650.56,"endTime":656.74,"body":"transaction right before closing that"},{"startTime":652.899,"endTime":658.51,"body":"would increase your working capital say"},{"startTime":656.74,"endTime":661.3,"body":"to one hundred and ten thousand dollars"},{"startTime":658.51,"endTime":661.779,"body":"so in that situation and whatever the"},{"startTime":661.3,"endTime":664.329,"body":"purge"},{"startTime":661.779,"endTime":668.589,"body":"price was that additional $10,000 would"},{"startTime":664.329,"endTime":670.42,"body":"go to the seller and you know that that"},{"startTime":668.589,"endTime":672.22,"body":"feels right in some way Bobby right"},{"startTime":670.42,"endTime":675.009,"body":"because hey I've just made this big sale"},{"startTime":672.22,"endTime":676.72,"body":"and I'm not gonna get any of that cash"},{"startTime":675.009,"endTime":680.98,"body":"but I get some benefit of it through the"},{"startTime":676.72,"endTime":682.99,"body":"working capital now you know take the"},{"startTime":680.98,"endTime":684.97,"body":"opposite end of the spectrum you could"},{"startTime":682.99,"endTime":687.759,"body":"have a situation where again just based"},{"startTime":684.97,"endTime":690.1,"body":"on timing of clothes maybe the closing"},{"startTime":687.759,"endTime":693.129,"body":"date was a day or two before you've done"},{"startTime":690.1,"endTime":694.72,"body":"your check run for that that week or"},{"startTime":693.129,"endTime":697.42,"body":"every other week however often you do it"},{"startTime":694.72,"endTime":699.129,"body":"and just because of that your accounts"},{"startTime":697.42,"endTime":701.589,"body":"payable are just much higher than they"},{"startTime":699.129,"endTime":704.139,"body":"normally are so in that situation you"},{"startTime":701.589,"endTime":705.939,"body":"may have a close where the working"},{"startTime":704.139,"endTime":710.529,"body":"capital is say ninety thousand dollars"},{"startTime":705.939,"endTime":712.959,"body":"and again that ten thousand dollar"},{"startTime":710.529,"endTime":714.85,"body":"difference would come off the payment to"},{"startTime":712.959,"endTime":716.709,"body":"the seller and again that feels right"},{"startTime":714.85,"endTime":719.68,"body":"because you get at the end of the day"},{"startTime":716.709,"endTime":721.48,"body":"you as the buyer would inherit just a"},{"startTime":719.68,"endTime":723.639,"body":"higher level of AP then it should be"},{"startTime":721.48,"endTime":726.579,"body":"there just because of that that timing"},{"startTime":723.639,"endTime":729.309,"body":"yeah and you know at the end of the day"},{"startTime":726.579,"endTime":731.319,"body":"so working capital can possibly affect"},{"startTime":729.309,"endTime":734.139,"body":"you know so you can be getting more"},{"startTime":731.319,"endTime":735.819,"body":"money yep depending on the situation the"},{"startTime":734.139,"endTime":738.189,"body":"agreed upon number or you could be"},{"startTime":735.819,"endTime":739.569,"body":"writing a check because the working"},{"startTime":738.189,"endTime":741.339,"body":"capital was not sufficient enough to"},{"startTime":739.569,"endTime":744.61,"body":"continue to operate the business post"},{"startTime":741.339,"endTime":745.959,"body":"transaction yep so but there's also"},{"startTime":744.61,"endTime":747.579,"body":"something you know for the business"},{"startTime":745.959,"endTime":749.86,"body":"owners at home is is there's a working"},{"startTime":747.579,"endTime":752.319,"body":"capital collar you know and how does"},{"startTime":749.86,"endTime":754.72,"body":"that come into play can you define that"},{"startTime":752.319,"endTime":758.47,"body":"and tell us that sure that's another"},{"startTime":754.72,"endTime":760.269,"body":"it's another popular mechanism right you"},{"startTime":758.47,"endTime":762.04,"body":"know because again the examples I gave"},{"startTime":760.269,"endTime":764.949,"body":"before are what we call a dollar for"},{"startTime":762.04,"endTime":768.309,"body":"dollar type of adjustment where again if"},{"startTime":764.949,"endTime":770.11,"body":"it was a target of $100,000 and we"},{"startTime":768.309,"endTime":771.759,"body":"closed and the actual working capital"},{"startTime":770.11,"endTime":773.769,"body":"closing were one hundred thousand and"},{"startTime":771.759,"endTime":775.0,"body":"one dollars there would be a true up"},{"startTime":773.769,"endTime":777.129,"body":"between the parties now most people"},{"startTime":775.0,"endTime":778.449,"body":"don't want to go through that right so"},{"startTime":777.129,"endTime":780.73,"body":"they may put what we call a collar"},{"startTime":778.449,"endTime":781.839,"body":"around it to say okay we think there"},{"startTime":780.73,"endTime":784.199,"body":"should be a hundred thousand dollars of"},{"startTime":781.839,"endTime":786.519,"body":"working capital but if there's between"},{"startTime":784.199,"endTime":788.62,"body":"ninety five thousand and a hundred and"},{"startTime":786.519,"endTime":790.149,"body":"five thousand economically that's still"},{"startTime":788.62,"endTime":791.47,"body":"the same deal we were thinking of and"},{"startTime":790.149,"endTime":791.95,"body":"there's no need to write a check back"},{"startTime":791.47,"endTime":795.64,"body":"and forth"},{"startTime":791.95,"endTime":798.64,"body":"so that can help in the ultimate"},{"startTime":795.64,"endTime":801.49,"body":"negotiation of the target again it's not"},{"startTime":798.64,"endTime":802.96,"body":"tied to a specific number just because"},{"startTime":801.49,"endTime":806.41,"body":"it gives both sides a little bit of a"},{"startTime":802.96,"endTime":807.79,"body":"flux on either end because like you're"},{"startTime":806.41,"endTime":809.23,"body":"never going to be able to nail down an"},{"startTime":807.79,"endTime":811.0,"body":"exact working capital number at any"},{"startTime":809.23,"endTime":814.03,"body":"period of time for any number of reasons"},{"startTime":811.0,"endTime":816.91,"body":"so it's something that allows you to"},{"startTime":814.03,"endTime":818.86,"body":"again have some have some flux in there"},{"startTime":816.91,"endTime":820.66,"body":"not necessarily have to fight over every"},{"startTime":818.86,"endTime":821.98,"body":"last dollar but still gets everybody"},{"startTime":820.66,"endTime":825.22,"body":"economically the deal that they're"},{"startTime":821.98,"endTime":827.29,"body":"hoping to get one last question is it"},{"startTime":825.22,"endTime":829.45,"body":"relates to work couples it's going back"},{"startTime":827.29,"endTime":831.19,"body":"a little bit in terms of definition and"},{"startTime":829.45,"endTime":834.15,"body":"what's included there's been times where"},{"startTime":831.19,"endTime":838.3,"body":"we've seen a seller try to include a"},{"startTime":834.15,"endTime":840.13,"body":"potential tax refund into into working"},{"startTime":838.3,"endTime":842.38,"body":"capital or some other assets you know"},{"startTime":840.13,"endTime":844.21,"body":"that what are some of the more common"},{"startTime":842.38,"endTime":846.52,"body":"ones that you see being placed that you"},{"startTime":844.21,"endTime":848.62,"body":"know certainly don't fit in in the"},{"startTime":846.52,"endTime":851.14,"body":"definition yeah so I think when we think"},{"startTime":848.62,"endTime":855.31,"body":"about working capital in terms of this"},{"startTime":851.14,"endTime":856.84,"body":"mechanism it should really be just the"},{"startTime":855.31,"endTime":859.21,"body":"recurring assets liabilities of the"},{"startTime":856.84,"endTime":861.34,"body":"business there are other places within"},{"startTime":859.21,"endTime":863.98,"body":"the purchase agreement contract where a"},{"startTime":861.34,"endTime":866.08,"body":"where a seller can make sure that they"},{"startTime":863.98,"endTime":868.45,"body":"get paid for things like a tax refund"},{"startTime":866.08,"endTime":869.68,"body":"right one hasn't come through yet"},{"startTime":868.45,"endTime":871.0,"body":"there are other places within the"},{"startTime":869.68,"endTime":872.92,"body":"contract where you could make sure that"},{"startTime":871.0,"endTime":874.27,"body":"they get the benefit of that you know"},{"startTime":872.92,"endTime":876.46,"body":"putting that into the working capital"},{"startTime":874.27,"endTime":877.99,"body":"mechanism isn't always the best thing"},{"startTime":876.46,"endTime":880.51,"body":"because just muddies the water on what"},{"startTime":877.99,"endTime":883.69,"body":"it's supposed to be which is a really"},{"startTime":880.51,"endTime":885.55,"body":"just a normalization the you know puts"},{"startTime":883.69,"endTime":887.98,"body":"and takes on cash you know your current"},{"startTime":885.55,"endTime":891.13,"body":"assets and your current liabilities so"},{"startTime":887.98,"endTime":892.96,"body":"that's really the goal and so I would I"},{"startTime":891.13,"endTime":894.85,"body":"would just urge people to you know if"},{"startTime":892.96,"endTime":897.43,"body":"you have other items like that that you"},{"startTime":894.85,"endTime":900.16,"body":"just deal with it and the way outside of"},{"startTime":897.43,"endTime":902.5,"body":"working capital so the best you know to"},{"startTime":900.16,"endTime":905.11,"body":"simplify the working capital calculation"},{"startTime":902.5,"endTime":906.28,"body":"you know dumb it down to exactly what it"},{"startTime":905.11,"endTime":909.46,"body":"entails yeah and then if there is"},{"startTime":906.28,"endTime":912.07,"body":"something else put in other areas of of"},{"startTime":909.46,"endTime":915.46,"body":"the person's to agreement or find ways"},{"startTime":912.07,"endTime":918.55,"body":"to to get compensated or you know vice"},{"startTime":915.46,"endTime":920.32,"body":"versa right for that I'd agree is there"},{"startTime":918.55,"endTime":922.18,"body":"anything else you know from your"},{"startTime":920.32,"endTime":924.19,"body":"experience maybe that we didn't cover"},{"startTime":922.18,"endTime":926.0,"body":"from a working capital standpoint that"},{"startTime":924.19,"endTime":928.27,"body":"you might want to"},{"startTime":926.0,"endTime":932.26,"body":"let business owners know or to think of"},{"startTime":928.27,"endTime":935.72,"body":"you know I would just say that you know"},{"startTime":932.26,"endTime":938.45,"body":"understanding what this is and that it"},{"startTime":935.72,"endTime":940.13,"body":"does have it could have an impact on"},{"startTime":938.45,"endTime":941.87,"body":"your ultimate purchase price is"},{"startTime":940.13,"endTime":945.32,"body":"important so give it some authority"},{"startTime":941.87,"endTime":948.11,"body":"owner beforehand yeah you know and the"},{"startTime":945.32,"endTime":950.93,"body":"goal everybody's goal should be that"},{"startTime":948.11,"endTime":954.32,"body":"this results in no change Yeah right you"},{"startTime":950.93,"endTime":955.64,"body":"know nobody wants to make or lose any"},{"startTime":954.32,"endTime":957.26,"body":"real value because of the working"},{"startTime":955.64,"endTime":959.81,"body":"capital adjustment the whole idea of it"},{"startTime":957.26,"endTime":961.43,"body":"is just to have a fair transaction that"},{"startTime":959.81,"endTime":965.81,"body":"lines up the economics that everybody"},{"startTime":961.43,"endTime":967.88,"body":"agreed to so I you know hopefully"},{"startTime":965.81,"endTime":969.62,"body":"everybody can avoid looking at it as a"},{"startTime":967.88,"endTime":971.6,"body":"you know somebody's trying to grab a"},{"startTime":969.62,"endTime":973.459,"body":"couple extra dollars from me ultimately"},{"startTime":971.6,"endTime":975.95,"body":"it's just trying to make sure that the"},{"startTime":973.459,"endTime":978.23,"body":"transaction is ultimately structured"},{"startTime":975.95,"endTime":982.1,"body":"with the economics everybody originally"},{"startTime":978.23,"endTime":983.93,"body":"wanted so but as a business owner you're"},{"startTime":982.1,"endTime":986.99,"body":"still going to have to be cognizant of"},{"startTime":983.93,"endTime":988.58,"body":"you know what is in that number and what"},{"startTime":986.99,"endTime":990.32,"body":"is in that calculation from an account"},{"startTime":988.58,"endTime":992.3,"body":"by account perspective and and the fact"},{"startTime":990.32,"endTime":994.459,"body":"that it might impact you at the end of"},{"startTime":992.3,"endTime":996.92,"body":"the day and I think one of the places we"},{"startTime":994.459,"endTime":999.16,"body":"see this for business owners and a lower"},{"startTime":996.92,"endTime":1002.41,"body":"middle market company is they may not"},{"startTime":999.16,"endTime":1004.72,"body":"update their balance sheet accounts"},{"startTime":1002.41,"endTime":1006.61,"body":"every month so you may for very good"},{"startTime":1004.72,"endTime":1010.39,"body":"reason yeah so for very good reason you"},{"startTime":1006.61,"endTime":1013.57,"body":"may not update your payroll accrual or"},{"startTime":1010.39,"endTime":1015.459,"body":"other items other than at year-end"},{"startTime":1013.57,"endTime":1016.54,"body":"because from month to month it doesn't"},{"startTime":1015.459,"endTime":1019.72,"body":"really make a difference to you you're"},{"startTime":1016.54,"endTime":1022.3,"body":"paying these things cash but the changes"},{"startTime":1019.72,"endTime":1024.73,"body":"in those balances over time could have"},{"startTime":1022.3,"endTime":1027.22,"body":"some impact on on what you're ultimately"},{"startTime":1024.73,"endTime":1029.439,"body":"agreeing to as the target for working"},{"startTime":1027.22,"endTime":1032.92,"body":"capital so just be cognizant of those"},{"startTime":1029.439,"endTime":1034.72,"body":"items and you know make sure you're"},{"startTime":1032.92,"endTime":1037.209,"body":"factoring that in when you're ultimately"},{"startTime":1034.72,"endTime":1039.22,"body":"agreeing to what a target is going to be"},{"startTime":1037.209,"endTime":1040.54,"body":"for working capital and one last"},{"startTime":1039.22,"endTime":1043.15,"body":"question is does tail off of that then"},{"startTime":1040.54,"endTime":1046.78,"body":"it's in your experience is it the you"},{"startTime":1043.15,"endTime":1049.6,"body":"know accruals or what what's the been"},{"startTime":1046.78,"endTime":1052.63,"body":"the biggest reason for an adjustment is"},{"startTime":1049.6,"endTime":1054.1,"body":"the inventory what what generally is is"},{"startTime":1052.63,"endTime":1057.4,"body":"the biggest reason that they want to"},{"startTime":1054.1,"endTime":1059.409,"body":"make sure that they button up yeah two"},{"startTime":1057.4,"endTime":1061.45,"body":"things one is one is accruals"},{"startTime":1059.409,"endTime":1064.48,"body":"particularly you know maybe for things"},{"startTime":1061.45,"endTime":1067.63,"body":"like a bonus if you know if you're"},{"startTime":1064.48,"endTime":1069.07,"body":"closing near year-end you know you're"},{"startTime":1067.63,"endTime":1070.57,"body":"getting to a time where maybe your"},{"startTime":1069.07,"endTime":1071.529,"body":"employees have earned a bonus but you"},{"startTime":1070.57,"endTime":1073.539,"body":"haven't paid it yet"},{"startTime":1071.529,"endTime":1076.21,"body":"so that's that's another thing on timing"},{"startTime":1073.539,"endTime":1078.61,"body":"is just certain of those liabilities can"},{"startTime":1076.21,"endTime":1081.88,"body":"be heavily weighted towards one period"},{"startTime":1078.61,"endTime":1086.559,"body":"or another and then the other the other"},{"startTime":1081.88,"endTime":1088.0,"body":"item is inventory you know if we"},{"startTime":1086.559,"endTime":1091.149,"body":"ultimately come to a spot where the"},{"startTime":1088.0,"endTime":1092.86,"body":"final inventory balance and closing is"},{"startTime":1091.149,"endTime":1094.389,"body":"going to be term and determined based on"},{"startTime":1092.86,"endTime":1097.299,"body":"a physical inventory which we would"},{"startTime":1094.389,"endTime":1098.62,"body":"always suggest is the route to go and as"},{"startTime":1097.299,"endTime":1100.269,"body":"you close a transaction you should take"},{"startTime":1098.62,"endTime":1101.98,"body":"a physical inventory particularly for a"},{"startTime":1100.269,"endTime":1103.84,"body":"manufacturing company may not be as"},{"startTime":1101.98,"endTime":1105.6,"body":"relevant for a service or other type"},{"startTime":1103.84,"endTime":1108.429,"body":"business but for a manufacturing company"},{"startTime":1105.6,"endTime":1112.419,"body":"so any differences that may exist"},{"startTime":1108.429,"endTime":1115.289,"body":"between your records between your books"},{"startTime":1112.419,"endTime":1117.88,"body":"and what's actually in your warehouse"},{"startTime":1115.289,"endTime":1119.44,"body":"identifying that you know really well"},{"startTime":1117.88,"endTime":1121.83,"body":"before you get to that point would be"},{"startTime":1119.44,"endTime":1125.47,"body":"really helpful for everybody so you can"},{"startTime":1121.83,"endTime":1127.72,"body":"properly adjust the mechanism to"},{"startTime":1125.47,"endTime":1130.059,"body":"compensate for or hey maybe a difference"},{"startTime":1127.72,"endTime":1131.35,"body":"that's been there for a long time but"},{"startTime":1130.059,"endTime":1132.61,"body":"you just never true up on your books"},{"startTime":1131.35,"endTime":1133.72,"body":"yeah which again is hopefully something"},{"startTime":1132.61,"endTime":1136.169,"body":"that comes up during the diligence"},{"startTime":1133.72,"endTime":1140.38,"body":"process yeah and then the last thing"},{"startTime":1136.169,"endTime":1145.99,"body":"that really causes a you know a"},{"startTime":1140.38,"endTime":1150.07,"body":"discussion we put it that way is has to"},{"startTime":1145.99,"endTime":1152.529,"body":"do with deferred revenue so anytime you"},{"startTime":1150.07,"endTime":1155.86,"body":"as a business are taking cash from your"},{"startTime":1152.529,"endTime":1159.37,"body":"customers up front and then delivering a"},{"startTime":1155.86,"endTime":1162.429,"body":"product or service at a later time that"},{"startTime":1159.37,"endTime":1165.429,"body":"can become a difficult thing to deal"},{"startTime":1162.429,"endTime":1167.94,"body":"with in the working capital because in"},{"startTime":1165.429,"endTime":1170.95,"body":"reality when you look at that situation"},{"startTime":1167.94,"endTime":1173.919,"body":"what you've done is you know you've"},{"startTime":1170.95,"endTime":1175.779,"body":"taken a loan from your customer yeah so"},{"startTime":1173.919,"endTime":1177.82,"body":"you know as we think about that"},{"startTime":1175.779,"endTime":1180.01,"body":"ultimately that's really something"},{"startTime":1177.82,"endTime":1184.779,"body":"that's more often than not thought of as"},{"startTime":1180.01,"endTime":1186.1,"body":"debt yeah not working capital it's you"},{"startTime":1184.779,"endTime":1186.399,"body":"know rather than take a loan from the"},{"startTime":1186.1,"endTime":1188.169,"body":"bank"},{"startTime":1186.399,"endTime":1190.299,"body":"you've had your customer pay you up"},{"startTime":1188.169,"endTime":1191.65,"body":"front to finance something that you"},{"startTime":1190.299,"endTime":1195.28,"body":"still have to deliver"},{"startTime":1191.65,"endTime":1197.53,"body":"so you know we've seen it go both ways"},{"startTime":1195.28,"endTime":1199.47,"body":"in the ultimate definition that go into"},{"startTime":1197.53,"endTime":1201.64,"body":"the contracts of the deals we worked on"},{"startTime":1199.47,"endTime":1203.68,"body":"but it's definitely something to think"},{"startTime":1201.64,"endTime":1206.41,"body":"about in terms of pay that cash you've"},{"startTime":1203.68,"endTime":1209.23,"body":"already received is that something that"},{"startTime":1206.41,"endTime":1211.18,"body":"we call debt in the transaction or"},{"startTime":1209.23,"endTime":1212.47,"body":"something that goes into the calculation"},{"startTime":1211.18,"endTime":1214.15,"body":"of working capital yeah"},{"startTime":1212.47,"endTime":1216.28,"body":"great well thank you Justin I really"},{"startTime":1214.15,"endTime":1218.23,"body":"appreciate I think this is gonna be very"},{"startTime":1216.28,"endTime":1221.77,"body":"beneficial for a lot of business owners"},{"startTime":1218.23,"endTime":1223.45,"body":"this is again just a very salient topic"},{"startTime":1221.77,"endTime":1225.25,"body":"for for a lot of them as it affects"},{"startTime":1223.45,"endTime":1227.26,"body":"ultimately their their bottom line"},{"startTime":1225.25,"endTime":1230.02,"body":"that's right yeah thanks Jeff right"},{"startTime":1227.26,"endTime":1230.8,"body":"thanks thank you for taking the time to"},{"startTime":1230.02,"endTime":1232.72,"body":"watch another episode of"},{"startTime":1230.8,"endTime":1234.13,"body":"well-capitalized please subscribe to our"},{"startTime":1232.72,"endTime":1235.66,"body":"channel below if you have any additional"},{"startTime":1234.13,"endTime":1239.01,"body":"questions please leave them in the"},{"startTime":1235.66,"endTime":1239.01,"body":"comments section thank you"}]}