How does a post-closing working capital adjustment work?

The purchase price in a business sale agreement is rarely the final number that actually changes hands. Most deals include a working-capital adjustment, sometimes called a true-up, that reconciles the estimate used at closing against what the business actually delivered.

Why a target gets set before anyone knows the real number

Buyer and seller typically negotiate a working-capital target before closing, often based on a trailing average of the business’s recent normal operating levels, because the true closing-day balance is not knowable until after closing has already happened. That target becomes the benchmark the actual result is measured against, not a guess either side is stuck with.

How the actual number gets calculated

After closing, the parties prepare a closing statement, using an agreed accounting methodology, that measures the working capital genuinely delivered — receivables, payables, inventory and similar accounts as of the closing date. The gap between that actual figure and the pre-agreed target is the adjustment amount.

Where the money for the adjustment actually comes from

A shortfall below target usually comes out of an escrow account or holdback set aside specifically for this purpose, or is billed directly to the seller if no holdback was structured for it, while a surplus above target is typically paid over to the seller as an addition to the purchase price. Either direction, the mechanism exists so the final price reflects what was actually delivered, not just what was estimated on signing day.

Disagreements have their own resolution process

Purchase agreements generally build in a review period during which either party can object to the closing statement, followed by a negotiation window, and finally referral to an independent accountant if the parties still cannot agree. This mechanism exists to resolve a fundamentally accounting-driven dispute without defaulting straight to litigation.