Working Capital Adjustments: The Post-Closing Surprise Most Sellers Don't See Coming

Why a working capital target exists at all

Most deals are priced on a "cash-free, debt-free" basis with a normal, ongoing level of working capital — the cash tied up in receivables and inventory, net of payables — left in the business at closing so the buyer can operate it without immediately injecting more cash. That expected level is negotiated as a target, usually based on a trailing average.

If the business is delivered at closing with more working capital than the target, the seller is typically owed more; if it's delivered with less, the seller owes the buyer the difference. Either way, the number isn't finalized at closing — it's estimated, then trued up afterward once actual closing-date figures are confirmed.

Where the surprise usually comes from

The true-up happens 60 to 120 days after closing, once the buyer's accountants finalize the actual working capital delivered against the target. Sellers who weren't closely involved in negotiating the target — or who let receivables slip, drew down inventory, or delayed payables in the run-up to closing — often find the final adjustment goes against them.

It's common for owners to unconsciously manage the business differently in the months before a sale (collecting cash faster, deferring purchases) in ways that look good on a trailing income statement but shrink the working capital they're entitled to at closing.

How to protect yourself

Negotiate the target and the definition of working capital (which accounts are included, how inventory is valued, whether unusual items are excluded) as carefully as you negotiate price — this is not boilerplate. Run the calculation yourself in the weeks before closing so a big adjustment doesn't arrive as a surprise, and keep operating the business normally through closing rather than optimizing short-term cash at the expense of the working capital you'll be measured against.