Working capital is the first metric the lender watches. Run it tight from Day One.

The deal day working capital peg and what it sets up. The starting point is contractual.

The purchase agreement names a target working capital peg, a definition of working capital, and an adjustment mechanism for delivery at close. Newco walks into day one with a working capital balance close to that peg, subject to true up in the months following close as final receivable and payable balances settle. The peg is the baseline for the credit facility, the operating budget, and the management reporting. If the peg was set too low for the post close operating profile, Newco starts under capitalized. If it was set too high, the seller has been paid for working capital that does not produce value.

The buyer-side advisor reads the working capital definition and the adjustment mechanism in detail. Which receivables count, which payables count, how inventory is valued, how cash is treated. Each line is a potential dispute in the post close true up. The advisor builds the closing working capital schedule from primary records inside the seller environment and challenges the seller's calculation where the definition supports it. The work pairs with TSA quality of earnings overlap.

Working capital disputes after close can run six or seven figures. The discipline at close compounds.

Receivables when the seller still collects. Cash visibility is the issue.

In most TSAs the seller continues to collect customer receivables for a period. The customer pays into a seller bank account, the seller reconciles the receipt, and the seller sweeps the cash to Newco on an agreed schedule. The Newco cash forecast depends on the sweep timing and the sweep accuracy. Sweeps that arrive late or arrive with deductions for unexplained items create cash visibility problems that snowball into facility utilization issues.

The fix is clarity at signing. The TSA names the sweep frequency, the cut off, the reconciliation file format, and the dispute window for items the seller deducts. The Newco treasury team reconciles each sweep against the underlying invoice file and queries any deduction within the window. Where the deduction is for a seller charge such as bank fee or chargeback, the Newco team confirms the right of the seller to deduct and the cap on aggregate deductions. The work pairs with day one treasury cash management.

Migration to Newco direct collection is a milestone. The advisor manages the customer notice, the new banking detail, and the parallel run window.

Payables and supplier payment timing. The seller's terms are not your terms.

During the TSA the seller may continue to process payables for Newco vendors. Each payment runs through the seller's AP cycle on the seller's payment calendar. Where Newco standalone would pay weekly, the seller may pay every other week. That timing difference produces a working capital pattern that does not match the standalone target. The buyer-side advisor maps the AP calendar in week one and identifies the working capital impact.

Payment delays also affect supplier relationships. Critical suppliers that experience late payment in the first months of the carve-out may push Newco onto credit watch or shorten terms. That further compresses working capital. The fix is a vendor management calendar through the TSA period with a focus on critical suppliers. Newco treasury monitors the payment cycle for those suppliers and intervenes where needed. The work pairs with TSA exit procurement separation.

Migration to Newco direct payment is the other milestone. Each new bank file, each new vendor master record, each new payment authorization sequence has to land cleanly.

Inventory accounting and physical control. Two sets of records, one set of stock.

For Newcos with physical inventory, the carve-out introduces complexity that does not exist in pure services TSAs. Stock that sits on Newco shelves may still be recorded in the seller inventory system during the TSA period. Movements get posted in the seller ERP and reflected in Newco reporting through a translation. Physical counts at year end have to reconcile to both Newco records and seller records. Cost variances need to be allocated correctly to the entity that bears them.

The buyer-side advisor establishes the inventory accounting protocol in week one. Each stock movement has a clear posting rule. Each cost variance has a clear allocation rule. The year end physical count is planned with input from both sides. Where standardization is impossible during the TSA, the advisor documents the workaround and pushes for migration to a Newco inventory system before exit. The work pairs with industrial manufacturing carve-out TSA.

Inventory write downs during the TSA period need clear ownership. Without it both sides argue about the same hit at audit.

Weekly cash forecasting and the rolling thirteen weeks. The forecast is the early warning.

The standard tool for working capital control during a TSA is the rolling thirteen week cash forecast. Cash receipts and cash disbursements modeled by week, refreshed weekly, and reviewed against actuals. The forecast captures the cycle pattern, the seasonal pattern, and any one off items like TSA true ups or extension fees. Newco treasury runs the model. The buyer-side advisor reviews it and challenges assumptions that are too optimistic.

The forecast feeds three reports. The lender compliance file showing facility utilization and headroom. The board pack showing the cash position and key sensitivities. The treasury working file showing the daily action list. The forecast also surfaces the working capital pinch points before they arrive. A week with a large TSA settlement plus a payroll cycle plus a tax payment may exceed facility headroom unless customer collection accelerates. The advisor flags the pinch point a month out so the treasury team can act. The work pairs with TSA budget management.

Forecast accuracy improves through the year as the model learns the Newco specific patterns.

Working capital position at exit and beyond. The standalone profile is different.

The TSA exit changes the working capital pattern. Direct customer collection often shortens the cash conversion cycle. Direct supplier payment may extend it. Inventory accounting moves to Newco systems and may produce one time variances during transition. The exit working capital position needs to be modeled before exit and confirmed against actuals after. The buyer-side advisor builds the exit working capital plan three months out, including the cash bridge from the TSA period to the standalone state.

For PE owned Newcos preparing for an eventual sale, the working capital position at exit also affects the next deal market view. A clean, controlled working capital trend supports a higher valuation in the next process. A volatile or inflated working capital balance invites buyer pushback. The work pairs with operating partner value creation TSA.

Working capital is one of the quieter components of the TSA program. It is also one of the most consequential for the operating performance of Newco through the exit and into the steady state.

More on TSA financial operations.