Buying a Seasonal Landscaping Company: Setting a Fair Working Capital Target

The situation

Ifrah worked as a software developer, but on the side she owned a small landscaping and snow-removal company she had built up over several years around Kitchener. When a competitor twice her size came up for sale, she saw an opportunity to roughly triple her crew count, pick up long-standing commercial snow contracts, and stop competing for the same residential customers every spring. The seller was a company with three shareholders — two of them, sisters Amina and Simone, still ran day-to-day operations — built up over two decades by its founding family, with revenue that put the business somewhere in the $2,000,000 to $5,000,000 range depending on how harsh the winter had been.

Ifrah agreed on a purchase price with the sellers early and without much friction. Where the deal nearly came apart was a term that sounds technical but decides how much money actually changes hands: the working capital target, referring to the cash, accounts receivable and prepaid amounts, minus accounts payable and other short-term liabilities, that the seller agrees to leave inside the business at closing. Most purchase agreements for an operating business are priced on a debt-free, cash-free basis with a normal level of working capital included, meaning the buyer expects enough cash and receivables left in the company to keep it running the way it always has, without injecting new capital the day after closing.

For a business with steady, predictable revenue all year, setting that number is usually a matter of averaging the last twelve months of balance sheets. For a landscaping and snow-removal company, it is not that simple, and that difference became the whole negotiation.

Where the numbers stopped agreeing

The sellers' business earned the bulk of its revenue between November and March from snow-removal contracts, with a second, smaller season in spring and summer for landscaping work. Its balance sheet moved dramatically depending on when in the year you looked at it. In October, just before the snow season began, the company typically held very little cash and modest receivables, because the prior season's invoices had long since been collected and the next season's had not yet been billed. In March, at the peak of snow-removal invoicing, it might be holding several hundred thousand dollars in outstanding receivables from municipal and commercial clients who paid on extended terms.

The parties had agreed the deal would close in late autumn, before the snow season began, which meant the business would naturally be sitting at close to its lowest working capital point of the entire year. Amina and Simone's initial proposal used a working capital target based on a twelve-month average across the whole year — a number that made sense for an ordinary business, but for this one, applying an annual average to a closing date at the seasonal low point meant the sellers would effectively have to inject a large amount of extra cash into the business just to hit the target, cash Ifrah would then own the moment the deal closed. The sellers understandably objected; they were not willing to fund Ifrah's first winter out of their own pockets in exchange for a lower purchase price. Ifrah, for her part, could not accept a target set at the seasonal low, because that would leave her without enough working cash to cover payroll and fuel through the ramp-up to the snow season, before the season's first invoices were collected. Both positions were reasonable. The problem was that a single flat number could not fairly describe a business whose finances looked completely different depending on the month.

What we did

1. Pulled monthly, not annual, balance sheet data for the prior three years. An annual average hides seasonality; a month-by-month view shows it. Our team asked the sellers' accountant for balance sheets as of the end of each month for the past three fiscal years, which let us see exactly how working capital moved through the seasonal cycle rather than relying on a single blended figure.
2. Proposed a working capital target specific to the actual closing month. Instead of an annual average, we calculated the average working capital the business had historically held at that specific point in the calendar — late autumn, before snow season — across the three years of data. This gave both sides a benchmark that reflected what a normally run business genuinely looked like at that time of year, rather than an artificial number pulled from a different season.
3. Built in a true-up mechanism rather than relying on a single number at closing. Working capital is estimated at closing and then confirmed afterward once final numbers are available, with a dollar-for-dollar purchase price adjustment, up or down, if the actual figure differs from the target. We negotiated a defined post-closing period for that reconciliation and specified exactly which accounting policies would be used to calculate it, so neither side could argue later that the other had prepared the numbers unfairly.
4. Addressed the receivables collection risk separately from the working capital target. Even with a seasonally appropriate target, Ifrah was concerned about inheriting receivables from customers who might be slow to pay or might dispute an invoice from before her ownership. We negotiated a holdback, a portion of the purchase price kept in trust for a set period, specifically tied to the collectability of receivables included in the working capital calculation, so Ifrah was not fully exposed if some of what she was buying turned out to be uncollectible.
5. Documented the seasonal assumptions directly in the purchase agreement. Rather than leaving the reasoning behind the target in email correspondence, we wrote the seasonal methodology into the agreement itself, including the three-year reference period and the specific closing-month benchmark, so there would be no dispute later about what the parties had actually intended the number to represent.

The outcome

The parties settled on a working capital target of roughly $180,000, based on the three-year average for the business's position at the end of October, rather than the higher annual-average figure the sellers had first proposed or the near-zero figure a strict low-season snapshot would have produced. At closing, the sellers' actual working capital came in about $22,000 below that target, largely due to a slower autumn landscaping season that year, and the purchase price was adjusted downward by that amount under the true-up mechanism, exactly as the agreement specified. Neither side disputed the adjustment because the methodology had already been agreed before anyone knew which direction the number would move.

The receivables holdback also did some quiet work. Of the roughly $95,000 in receivables included in the closing working capital figure, about $11,000 turned out to be uncollectible from a commercial client who had gone out of business shortly before the sale. Because that amount had been captured by the holdback provision, Ifrah was reimbursed from the held-back funds rather than absorbing the loss outright or pursuing a separate claim against the sellers months after closing.

The deal closed on schedule in late autumn, and Ifrah took over the business with enough working cash to cover the ramp-up into snow season without a cash crunch. The negotiation cost both sides some ground: the sellers accepted a lower target than an annual average would have given them, and Ifrah accepted a higher target than a strict seasonal-low snapshot would have given her. Neither outcome was the number either side started with, but both were numbers each side could defend, which is generally the mark of a working capital target that will actually survive contact with the real closing date.

What you can learn from this