09/11/2026
Working Capital Can Quietly Destroy a Great Acquisition
Most buyers focus on revenue growth and EBITDA.
But a business can grow revenue, increase EBITDA, and still consume cash.
Working capital is often the reason.
Imagine acquiring a company growing 25% per year.
On paper, it looks attractive.
But to support that growth, the business needs more inventory before it can sell more product.
Receivables increase because customers do not pay immediately.
Suppliers may not extend payment terms at the same pace.
More cash gets trapped inside the operating cycle.
Suddenly, the growth you were excited about requires you to keep writing checks.
This is why I do not stop at EBITDA when evaluating an acquisition.
I want to understand:
How much working capital is required for every additional dollar of revenue?
How quickly do customers pay?
How much inventory must the business carry?
What payment terms do suppliers provide?
What happens to cash if the business grows 10%, 20%, or 30%?
Will growth fund itself, or will the owners have to fund it?
A company generating $10M of EBITDA is not necessarily a better acquisition than one generating $7M.
What matters is how much of that EBITDA eventually becomes cash available to owners.
Because you cannot pay debt service with EBITDA on a spreadsheet.
You cannot make distributions with revenue growth.
You need cash.
The best acquisitions are businesses that can grow without requiring a constant infusion of capital.
Look beyond EBITDA. Understand the cash requirement.
A great business should generate cash, not constantly consume it.
