Posted by Jennifer M. Settles, Esq. | June 26, 2026

Working Capital Adjustments: The Post-Closing Surprise That Costs Sellers Money

You negotiated hard, agreed on a purchase price, and signed the deal. Then, weeks after closing, you get a notice that you owe the buyer money – potentially even a substantial amount. For sellers who didn’t understand the working capital adjustment buried in their agreement, this is an unwelcome and expensive surprise. It’s one of the most common ways a deal that looked like one number actually becomes a smaller one.

Working capital adjustments are standard in business sales, and they aren’t inherently unfair – but they’re often misunderstood by sellers. Here’s what they are, why they exist, and how to keep one from eroding your proceeds.

What Working Capital Means in a Deal

In simple terms, working capital is the difference between a business’s current assets  (accounts receivable, cash, and inventory) and its current liabilities (accounts payable). It’s the day-to-day money the business needs to operate. When you sell a business, the buyer often expects to receive it with enough working capital to keep running normally on day one, without having to immediately inject their own cash. That expectation is what the adjustment is designed to enforce.

Why Buyers Insist on the Adjustment

The purchase price is typically negotiated assuming a “normal” level of working capital will be in the business at closing. The adjustment protects the buyer against last-minute changes to that level. Without it, a seller could, intentionally or not, collect all the receivables, delay paying the bills, and run down inventory before closing – thus handing the buyer a business stripped of the cash it needs to operate. The adjustment keeps the seller from changing the value of what’s being delivered between signing and closing.

How the Adjustment Works

The mechanics usually run like this: The parties agree on a working capital “target” (i.e., the normal level the business should have at closing). After closing, the actual working capital delivered is calculated and compared to that target. If the business was delivered with more working capital than the target, the buyer typically pays the seller the difference; if it was delivered with less, the seller pays the buyer. This true-up or reconciliation is why a seller can end up writing a check after the deal has closed.

Where Sellers Get Burned: Setting the Target

The most consequential – and most overlooked – part of the whole process is how the target is set. If the target is set too high relative to how the business actually operates, the seller is almost guaranteed to fall short and owe money at the true-up. Buyers sometimes propose a target based on a favorable period or a definition that doesn’t reflect normal operations. Sellers who don’t scrutinize the target—and the historical data behind it—are negotiating away part of their price without realizing it.

The Definition of Working Capital Is Everything

It’s not enough to agree on a number; you also have to agree on exactly what counts. Which accounts receivable are included? How is inventory valued? At what point is inventory deemed stale and not part of the valuation?    Are certain items—like deferred revenue or specific accruals—in or out? Two reasonable people can calculate “working capital” very differently depending on these choices, and each choice can move the final figure by a meaningful amount. The agreement should define the components precisely, ideally with a sample calculation attached, so there’s no room to reinterpret the terms after closing.

Consistency in Accounting Methods

A frequent source of post-closing fights is the accounting methodology used to compute the actual working capital. If the buyer calculates the closing figure using different methods or assumptions than were used to set the target, the comparison is no longer apples-to-apples, and the difference might come out of the seller’s pocket. A well-drafted agreement requires that the closing calculation be prepared consistently with how the target was determined, using the same accounting principles applied in the same way.

Build In a Way to Challenge the Numbers

Because the buyer usually prepares the post-closing calculation, the seller needs a meaningful right to review and dispute it. The agreement should give the seller access to the underlying records, a defined window to object, and a clear process for resolving disagreements (often referral to an independent accountant). Without these protections, a seller can be presented with a calculation and little practical ability to push back on figures that determine how much they keep.

How Sellers Can Protect Themselves

Beyond negotiating a fair target and a precise definition, sellers can take practical steps. Understand the adjustment mechanism fully before signing, rather than treating it as boilerplate. Run your own estimate of where working capital will likely land at closing. Avoid unusual moves in the run-up to closing that could distort the figure. And have advisors model the likely true-up so the result isn’t a surprise. The goal is to know your expected outcome going in, not to learn it from a demand letter afterward.

The Bottom Line

A working capital adjustment is a normal and reasonable part of most business sales.   However, it’s also a mechanism that can reduce a seller’s proceeds after the deal closes. The risk lives in the details: how the target is set, how working capital is defined, whether accounting methods are applied consistently, and whether the seller can effectively review the calculation. Sellers who understand these levers going in protect their price; those who don’t are often caught off guard.

If you’re selling your business, understanding the working capital adjustment before you sign is one of the simplest ways to protect the price you negotiated. Schedule a free consultation to make sure the deal you agreed to is the deal you actually get.    Contact us as www.jsettleslaw.com or (602) 617-3938.

About the Author Jennifer M. Settles makes business owners’ lives easier. With 25+ years structuring M&A deals, commercial contracts, corporate governance, and complex real estate transactions, including over two decades as lead in-house transactions counsel for major corporations, she brings big-firm firepower to the founders, dealmakers, and growing companies who need it most. Clients describe her as knowledgeable, refreshingly direct, and relentlessly focused on their best interests. Jennifer offers white-glove, direct-access service and transparent, predictable fees. Learn more or schedule a consultation.