Business sale working capital
A working-capital target can turn a headline purchase price into a different closing payment. Owners should understand the definition, target, measurement, and dispute process before treating the offer as proceeds.
The short answer
Many transactions are priced on a cash-free, debt-free basis with an agreed level of normalized working capital delivered at closing. If measured working capital is below the target, the purchase price may be reduced; if it is above the target, the price may increase—subject to the agreement.
There is no universal formula. The definition of included current assets and liabilities, accounting policies, seasonality, unusual balances, and post-close true-up mechanics are negotiated transaction terms.
Identify which receivables, inventory, prepaid items, payables, accrued expenses, deferred revenue, customer deposits, taxes, cash, and debt-like items are included or excluded. Labels in the financial statements do not automatically control the deal definition.
The target may use a trailing average, seasonal period, budget, normalized level, or another negotiated method. Test whether the measurement period reflects how the company actually operates at the expected closing date.
Specify the hierarchy of accounting principles, historical practices, estimates, reserves, write-offs, inventory costing, cutoff procedures, and consistency rules. Small accounting changes can produce large closing adjustments.
Bonuses, transaction expenses, unpaid taxes, capital leases, deferred compensation, customer advances, accrued owner obligations, and other balances may be argued as debt-like or working capital. Resolve classifications before the closing statement.
Aging, obsolescence, reserves, returns, discounts, concentration, collectability, and seasonal stocking can change the amount credited. Owners should understand whether the buyer’s quality assumptions match operating reality.
Know who prepares the estimated and final closing statements, the review period, access to records, objection procedure, independent accountant process, materiality thresholds, and whether an escrow secures the adjustment.
Before the closing statement
Use the exact definition and historical balance sheets to calculate the target and likely closing position.
Mark reserves, inventory, deferred revenue, bonuses, accruals, and debt-like items where the parties may apply different assumptions.
Compare how the expected closing month affects inventory, receivables, payables, customer deposits, and cash needs.
Show the target, estimated closing working capital, expected adjustment, escrow, debt payoff, costs, taxes, and cash at close in one proceeds bridge.
A direct starting point
Use the guided journey to organize the questions—or tell us directly what is in front of you.