Working Capital Peg in an Ecommerce Acquisition (2026)

A working capital peg is the normal level of working capital a buyer expects the business to hand over at close. If the real number at closing comes in above the peg, the price goes up. If it comes in below, the price goes down. In an ecommerce acquisition, that number is mostly inventory, and it can move the final check more than most sellers expect.

I have reviewed 50+ ecommerce acquisitions, and the headline price is rarely the number that lands in the bank. The "price is the price" view ignores the true-up that happens after the handshake. This is an operator's explainer, not legal, tax or accounting advice. Your lawyer and your CPA should review the mechanics before you sign anything.

What a working capital peg is, in plain terms

Working capital is current assets minus current liabilities. Corporate Finance Institute has a clean primer on the formula if you want the textbook version.

In a deal, you do not use the textbook number. You agree on a normal level, the peg, and a definition of what counts. At close, an accountant compares the actual balance sheet to the peg. The gap usually moves the purchase price dollar for dollar, if the agreement says so. That adjustment is separate from the headline multiple. It is the mechanism that stops a seller from draining the business before close, and stops a buyer from underpaying for a business that arrives with more stock than it needs.

Think of it this way. The buyer is paying for a business that runs. A business that runs needs inventory on the shelf, bills it can pay and cash to keep going. The peg is the written definition of "enough to run."

Why inventory dominates the number in a marketplace brand

A service business has little to count. An Amazon or marketplace brand is the opposite. Inventory sits in your own warehouse, at a 3PL, in FBA, and on a boat. It is usually the largest current asset on the balance sheet.

That makes the inventory line the place where deals get argued. Questions that look small in an LOI turn into real money at close:

• Is inventory counted at cost or at a write-down?
• Does in-transit stock count, and from what point?
• Does stock sitting at FBA count the same as stock at your 3PL?
• Who does the count, and on what date?

If none of this is written down, the count becomes a negotiation at the worst moment: after you have both spent weeks on diligence. My due diligence checklist covers how to verify the inventory number itself. The peg is about what you do with it once it is verified.

Item	How it usually behaves	Where it bites
Inventory	Largest current asset in a product business	Counting method, in-transit stock and aged units decide the number
Cash and Amazon balances	Cash in the bank plus funds Amazon owes you	Reserves and pending reimbursements may not be yours yet
Accounts receivable	Small for most DTC and marketplace brands	Easy to define, but check wholesale and retail accounts
Accounts payable and accrued bills	Supplier terms, ad bills, freight, software	Unpaid items shift cost to the buyer if they are not counted
Deferred items	Prepaid costs and customer deposits	Often forgotten, so list them in the definition

How the target is set: a look-back average, not one month

The usual approach is a look-back average of the monthly balance sheet over a trailing period. The point is to describe the normal level, not the best or worst month.

Ecommerce makes this harder because the business is seasonal. A brand that builds inventory ahead of Q4 looks very different in September than in January. If you measure the target in the peak month, the peg is inflated, and the seller has to deliver more inventory than the business needs for the next stretch. If you measure it in the trough, the peg is low and the buyer is exposed.

I am not going to hand you a typical window or a typical range. It depends on the brand's calendar, and any figure I quoted would be made up. What I will say is this: pick the window by looking at the monthly balance sheets together, and agree it before diligence. Not after.

The traps that move the price

The Q4 inventory build

A seller who closes in October with a pile of holiday stock may argue that the stock is real and should be paid for. The buyer sees a peg that was set on a normal-month average and a closing balance far above it. Both are right. That is why the target and the closing date have to be talked about together. If you expect to close near a seasonal build, say so in the LOI and agree how the build is treated.

Aged and stranded FBA inventory counted at cost

Stock that has sat too long, is stranded, or is no longer sellable does not turn into cash at its cost. If the definition says "inventory at cost," a seller can hit the peg with units the buyer will never sell at that price. Write down how aged, stranded and damaged units are valued, or exclude them. If you are running a brand on Amazon, an outside read on inventory health helps here, and my Amazon audit page shows how I look at it.

Amazon reserve balances and pending reimbursements

Amazon can hold funds in reserve and owe a brand reimbursements that have not been paid out. Are those cash? Are they a receivable? Who owns the reimbursement claims filed before close? The honest answer is that it depends on what you write down. Ask in the LOI, not on the closing statement.

Unpaid ad bills and supplier terms

A brand can look healthy at close because it has been delaying payment to suppliers and carrying unpaid ad charges. The cash is there. The liability is also there, and it lands on the buyer. If payables are outside the working capital definition, the seller keeps the benefit and the buyer inherits the bill. Include accrued ad spend, freight, 3PL invoices and supplier balances in the liabilities, and agree the cutoff date.

Red flag	What good looks like	Risk
Peg set on a single month	Use a look-back average of monthly balance sheets	High
Inventory at cost with no write-down rule	Define aged, stranded and damaged stock treatment	High
Amazon reserves counted as cash with no rule	Say whether reserves and reimbursements are in or out	Medium
Payables and ad bills left out of the definition	List every liability and set a cutoff date	High
No named person or date for the count	Agree who counts, and on what date	Medium
No dispute process	Name an independent accountant to settle gaps	Medium

What actually happens at close

The mechanics are simple even when the numbers are not.

First, the purchase agreement sets the peg and the definition. Second, at close the price adjusts using an estimate. Third, after close the actual balance sheet is finalized and a true-up payment goes one way or the other. If the two sides disagree on specific items, a named independent accountant resolves those items, not the whole deal.

The dispute process is the clause people skip, because it feels unfriendly. It is the clause that keeps a disagreement about one inventory line from turning into a lawsuit.

How it differs from an earnout and a seller note

These three get confused because they all affect what the seller actually receives. They do different jobs.

• Working capital adjustment: a true-up at close against a balance sheet target. It tests what was delivered.
• Earnout: extra price paid after close, only if the business hits a performance target. I covered the terms in earnout in an ecommerce acquisition.
• Seller note: a fixed debt the buyer owes the seller, paid over time. See seller note vs SBA loan.

A deal can have all three. The working capital adjustment says whether the business arrived in normal shape. The earnout says whether it performed. The note says how part of the price is financed. Keep them separate on paper so a dispute in one does not leak into the others.

Structure also interacts with whether you buy assets or stock, because what transfers changes what is on the balance sheet at close. Read asset purchase vs stock purchase, and ask your CPA how it applies to your facts. I do not state tax or accounting rules here, because they depend on the deal.

Why "the price is the price" costs you

The villain in this story is a simple one: the idea that the price in the LOI is the price you will be paid or pay. It is comfortable. It avoids an awkward conversation. And it hands the real number to whoever counts the inventory.

If you are a seller, the headline can shrink at close through a peg you never discussed. If you are a buyer, you can overpay for a balance sheet full of stock you cannot sell. Neither side benefits from a surprise in the closing statement.

The fix is cheap. Put the mechanics in the letter of intent and do not leave them blank:

1. How the working capital target is set, and the look-back window.
2. What is in the definition: inventory, cash, Amazon balances, receivables, payables, accrued ad spend.
3. How inventory is counted, valued and by whom.
4. How aged, stranded and damaged stock is treated.
5. The closing adjustment and true-up timeline.
6. The independent accountant who settles disputes.

Then run diligence against those definitions, not against a vague idea of "normal."

A pre-LOI checklist for either side

• Pull monthly balance sheets for the full look-back window and look at them side by side.
• Mark where the closing date falls in the seasonal cycle.
• Get a clear view of Amazon balances: available, reserved, pending.
• List every liability, including ad bills and supplier balances.
• Decide the inventory valuation rule before anyone counts a box.
• Ask your lawyer and CPA to review the definition before you sign.

If you want the full path from first call to close, start with how to acquire an ecommerce business. For how price gets built before any of this, see SDE vs EBITDA for ecommerce. And once the deal closes, the first 90 days after buying a business shows what the handover looks like from the buyer's chair.

The decision rule

Agree the peg in the LOI. Not in the purchase agreement draft, and not at closing. By the time lawyers are redlining, the leverage has moved, and the party that benefits from vagueness will not volunteer a fix.

If you are weighing a purchase instead, see the current deals. I also send a weekly note on deal structure at mikebegg.me/newsletter.

Frequently asked questions