A working capital review checklist for a Canadian business purchase covers verifying historical working capital levels, agreeing what counts as normal for the business’s seasonal cycle, confirming what is included and excluded from the deal, and building a true-up mechanism into the purchase agreement so neither side is short-changed by the number left in the business at closing.
Reviewed
This checklist covers how a buyer reviews and negotiates working capital in a Canadian business purchase, distinct from sizing how much working capital a buyer personally needs to fund after taking over. Working capital left in the business at closing is a term to be verified and negotiated like any other, not a figure to accept from the seller without independent review.
Establish the historical baseline
Request working capital balances for several trailing periods, not just a single monthOne month proves very little about a normal level, and a seller who resists providing a longer history is worth asking why directly.
Map the seasonal high and low points across a full year of operationsA business closing in a naturally low point of its cycle needs a very different working capital target than one closing at its seasonal peak.
Ask how the seller is defining normal working capital, and check it against the actual historyA definition that conveniently matches whatever number benefits the seller, rather than a genuine historical average, is a sign the calculation needs independent verification.
Confirm what is actually included in the deal
Get a clear list of what counts as working capital for the purpose of this dealReceivables, payables and inventory are the obvious pieces, but a written definition avoids a dispute later over an item that turns out not to be so obvious.
Confirm cash, intercompany balances and non-operating items are excluded unless specifically agreed otherwiseA working capital calculation that quietly folds in items that belong elsewhere in the purchase price inflates the number both sides are actually negotiating over.
Check that inventory is being counted and valued the same way it always has beenA seller who changes a long-standing counting or valuation method right before closing may be adjusting the working capital number more than the inventory itself.
Watch for last-minute manipulation
Compare working capital in the weeks before closing against the historical averageA sudden spike in cash paired with unusually stretched-out payables in the run-up to a sale is a classic sign of a business being drained before handover.
Ask directly whether receivables collection or payables timing has changed recentlyA seller pushing customers to pay early, or quietly delaying supplier payments, can flatter the working capital number without changing anything about how the business really operates.
Have your own accountant build an independent estimate rather than accepting the seller’s number as givenAn independent calculation, built from the same underlying records, is what actually protects a buyer from a working capital target set to favour the seller.
Build protection into the agreement
Confirm the purchase agreement sets a specific working capital target, not a vague expectationA target described only in general terms gives both sides room to argue after closing, when neither has much incentive left to compromise.
Agree on a true-up mechanism and timeline for resolving any shortfall or surplus after closingA deal with no agreed process for adjusting price after the final number is confirmed tends to end in a dispute rather than a straightforward payment.
Confirm how a disagreement over the calculation actually gets resolved if the two sides cannot agreeNaming a specific accountant or dispute process in the agreement itself is far cheaper than discovering there is no mechanism once a real disagreement has already started.
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.