A correction to the price at completion so the business is handed over with a normal level of day-to-day operating cash. It routinely moves the final number, and it surprises sellers who assumed the headline price was the price.
Why it matters
A working capital adjustment exists because the headline price in a deal is usually agreed
weeks or months before the money actually changes hands, and the business keeps operating in the
meantime — collecting receivables, paying suppliers, building or drawing down inventory. The
adjustment corrects the final payment so the buyer receives the business with a normal level of
day-to-day operating cash, neither stripped out by the seller beforehand nor artificially
inflated to flatter the numbers at closing.
For a founder used to thinking of the agreed price as the price, this is often the first
surprise: the actual amount received can move up or down from the headline figure, sometimes by a
meaningful amount, based on a calculation that happens after the deal everyone thought was
already settled.
How it works
The parties agree a target working capital figure, usually based on a historical average for
the business, before signing. At or shortly after closing, the actual working capital is measured
and compared to that target. If actual working capital is below target, the price is reduced; if
it is above, the price is increased — the adjustment runs in both directions, not just one.
Because the calculation depends on accounting judgements — what counts as a current asset or
liability, how inventory is valued, whether certain accruals are included — the mechanics of how
it is calculated and by whom matter as much as the target figure itself. Disputes here are common
enough that many deals name an independent accountant to resolve disagreements, the same way an
earnout or an escrow claim often does.
Questions people ask
- What is a working capital adjustment and why does it change the sale price?
- It is a correction applied at closing so the business is handed over with a normal amount of day-to-day operating cash, rather than one stripped bare or artificially topped up. Because the actual figure is only measured near closing, it commonly moves the final payment up or down from the headline price agreed earlier.
- Can a working capital adjustment increase the sale price?
- Yes. It moves in both directions. If the business is handed over with more working capital than the agreed target, the price increases to compensate the seller; if it has less, the price decreases. It is a two-way correction, not a one-way discount against the seller.
- Who resolves disputes over a working capital adjustment?
- Because the calculation involves accounting judgements that reasonable people can disagree on, many deals name an independent accountant in advance to resolve disputes, with a defined process and deadline. That turns a potential argument into a bounded, pre-agreed procedure instead of an open-ended negotiation.
See also
More in Deal structure
- Asset purchase — The buyer acquires chosen assets — code, customers, brand, sometimes staff — rather than the company.
- Cap table — The register of who owns what: shares, options, convertibles and the terms attached to each.
- Earnout — Part of the price paid later, only if the business hits agreed targets.
- Escrow — Part of the price held by a neutral third party for an agreed period, available to the buyer if the seller’s promises turn out to be wrong.
- Liquidation preference — The right of certain investors to be paid before ordinary shareholders when the company is sold.
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Updated 2026-09-09