The wire that hits at closing is not the number from the letter of intent. The funds flowing to the seller are the agreed price, less debt payoff, fees, and expenses, then adjusted for working capital: the operating capital the buyer expects to inherit to run the business on day one. Because the books are not yet formally closed, that working capital figure is set off an estimated balance sheet prepared a few days before close. So the closing wire already carries a preliminary adjustment.
The real reconciliation comes 60 to 90 days later. The buyer closes the books as of the closing date, compares actual working capital to the agreed target, and trues the estimate to actual. That difference is the true-up, a second cash movement that can run six figures in either direction, long after everyone assumed the deal was done.
of private-target deals now carry a working capital adjustment, up from roughly half a decade ago.
SRS Acquiom
hold the true-up in a separate escrow. That is the highest share since tracking began in 2006.
ABA 2025 Deal Points
make that escrow the sole source of recovery, so the clause language governs.
ABA 2025 Deal Points
How the number is built
Net working capital is the everyday operating capital a business needs to run once the deal has closed:
Net Working Capital =
Operating Current Assets
Accounts Receivable
Inventory
Prepaid Expenses
Other Current Assets
Operating Current Liabilities
Accounts Payable
Accrued Liabilities
Other Current Liabilities
Measured cash-free, debt-free. Excludes cash, interest-bearing debt, transaction expenses, income taxes, and other debt-like items, all settled separately at close.
Why it catches owners off guard
- Two payments, not one. The closing wire is preliminary; the binding true-up arrives 60 to 90 days later.
- Attention has moved on. By the time the final statement lands, the owner is into retirement or the next venture. A clawback is the last thing they expect.
- The clause governs, not goodwill. Where the escrow is the sole recovery source, the wording decides who keeps the money.
- The clock is short. Sellers get a brief window to review and object; unresolved items go to an independent accountant.
The peg is the agreed target the true-up is measured against, typically a trailing twelve-month average of that figure, set to represent a normal operating level. Where it lands, and over what look-back period, moves real dollars long before the final balance sheet is reconciled.
The seasonality trap
For businesses with a seasonal or cyclical rhythm (building products, agriculture, landscaping, distribution, consumer goods), working capital is a moving target. It balloons ahead of peak season as inventory and receivables build, then drains afterward. Measure a single annual-average peg against a point-in-time closing balance, and the true-up can reflect nothing more than the month you happened to close.
- Close at a working capital trough against an annual-average peg, and you may owe a large true-up for delivering a normal seasonal low.
- The fix is a peg that respects the calendar: a monthly peg schedule, a same-month-prior-year reference, or a look-back matched to the closing date.
What we tell owners
- Model your own normalized NWC early, so you set the anchor instead of reacting to the buyer's.
- Choose the look-back period deliberately, and match it to how the business actually runs.
- Clean the balance sheet before the process: collect stale receivables, clear dead inventory, and normalize payables.
- Negotiate the definition, not just the number; how each account is calculated matters as much as the peg.
Let's talk
Considering a sale, or want to pressure-test your working capital position before a process? Start the conversation.
Eric Green · Managing Director, Cascade Partners · ericg@cascade-partners.com ·
Sources: SRS Acquiom 2025–2026 M&A Working Capital Purchase Price Adjustment Study and M&A Deal Terms Study; ABA Business Law Section 2025 Private Target M&A Deal Points Study. Figures reflect private-target transactions and are directional, not guarantees for any specific deal.
For general information only. Not legal, tax, or accounting advice.