Model the working capital intensity, cash conversion cycle, and the real cost of funding growth in a distribution or wholesale business.
Distribution businesses typically have thin gross margins (15–30%) and significant working capital requirements — inventory sitting in a warehouse and receivables owed by customers are both cash tied up that isn't earning a return. The cash conversion cycle tells you exactly how long a dollar is trapped in the business before it comes back as collected revenue.
When you acquire a distribution business, you're buying the working capital along with the business. And when you grow it, every dollar of new revenue requires new working capital to support it — this is the hidden cost of growth that catches buyers off guard. The "Cash to Fund Growth" figure above shows you what you need to budget.
| Metric | What it means | Benchmark |
|---|---|---|
| Gross Margin | Revenue minus cost of goods — the margin on product | 15–30% for distribution |
| Cash Conversion Cycle | Days inventory + AR days − AP days | <45 days is efficient; >75 days is cash-hungry |
| NWC % Revenue | Working capital as a share of revenue | 10–18% typical; lower = more cash-efficient |
| EBITDA Margin | Net operating profitability | 5–12% for distribution |
| Inventory Turns | 365 ÷ Inventory Days | 8–15x/yr for distribution |
Always negotiate a working capital target ("peg") in the LOI. The peg should be set at normalized levels based on trailing 12-month averages, not a balance sheet date that the seller can manipulate by pulling forward receivables or delaying payables before close.
Use the Working Capital Cycle calculator to establish what normalized NWC should look like, and use that as your peg negotiation anchor.
An editable Excel workbook — 5-year income statement, balance sheet, cash flow, DCF + exit-multiple valuation, and a deal tab with debt schedule, IRR & MOIC. Pre-filled with the inputs above; every assumption recalculates.