What it means
A business changes between signing a deal and completing it, and completion accounts show its actual position on completion day. The buyer usually prepares them after completion, and the seller reviews them.
Price adjustments are made for differences in net debt and working capital versus agreed levels, and disputes may go to an independent accountant. For owners selling a business, clear accounting rules for completion accounts reduce disputes and surprises.
The sale agreement should describe the price mechanism before anyone signs, starting with a headline enterprise value and then adjusting for cash, debt and working capital at completion using negotiated definitions, though some deals instead start from a different base or use a locked-box price. The formula in this entry is a simplified illustration and is correct only if the base price and net-debt definition match it, so it should not be applied mechanically to an agreement that already includes cash or debt.
Define the accounting date and cut-off, since completion may occur partway through a month, with invoices issued, goods shipped and bank payments in transit. Decide whether cash in restricted accounts is included, how customer deposits are classified and which unpaid amounts count as debt-like items.
A company can have good annual accounts yet still need a precise snapshot at the moment ownership changes. Working capital is often compared with a target because the buyer expects a normal level of stock, receivables and operating payables, and if the seller runs down stock or delays supplier payments before closing, the buyer may inherit a cash need.
The target should reflect seasonality and the actual operating model, not a convenient single month, and the agreement should say what happens to overdue receivables, bad debt provisions and unusual customer advances. The simple calculation takes a $10 million base, adds $300,000 of working capital above the target and subtracts $1 million of net debt, yielding $9.3 million, which assumes the base is debt-free/cash-free and no separate cash adjustment is due.
A real share purchase agreement may define net debt as debt less cash, or treat cash separately, so sample calculations should be written into the agreement so both parties understand each line. Specify who prepares the draft accounts, when they are delivered, what access the other party has and how disputes are raised, because the buyer often controls accounting records after completion while the seller needs enough access to review the adjustment.
Set deadlines for objections, exchange of evidence and referral to an independent expert, since a dispute mechanism should not be improvised when money is already at stake. Agree the order of specific deal policies, reference accounts and accounting standards, because conflicting instructions can drive a price dispute, and avoid double counting a balance as both debt and working capital by testing each material item in a mock completion statement before signing.
A locked box sets price from an earlier balance sheet, with protections against leakage, and it offers more price certainty but less adjustment to closing figures. The two routes should be compared with advisers.
In practice
Real-world examples.
Example
A buyer and seller agree a target level of working capital before signing, then compare it with the completion-day amount.
Example
A seller challenges the buyer draft accounts because a receivable was excluded under a disputed ageing policy.
Example
The parties use a worked price adjustment in the sale agreement to confirm whether a supplier balance is working capital or debt.
Formula
Calculation
Final price = Base price + (Actual working capital minus Target working capital) minus Net debt
Worked example. Base price $10,000,000, working capital $300,000 above target and net debt $1,000,000.
- Final price: $10,000,000 + $300,000 - $1,000,000 = $9,300,000
A second case shows an adjustment in the buyer's favour. If working capital is $200,000 below the target and net debt is $500,000, the final price is $10,000,000 - $200,000 - $500,000 = $9,300,000, the same figure reached by a different route. The agreement must say which items count in each part, so the same balance is not deducted twice.Case study
Seen in the real world.
This illustrative and entirely fictional example follows Harbour Foods, an invented distributor sold to an investor. Harbour Foods disputed whether overdue receivables should reduce working capital and whether one supplier balance counted as debt as well. The contract did not say clearly, so both sides presented reasonable-looking but conflicting calculations.
An independent expert eventually resolved the dispute, after time and advisory costs. In this fictional example, a later deal used a sample price calculation, a clear accounting hierarchy and agreed definitions before signing. The lesson is that completion accounts can measure the closing position, but they do not prevent disputes if the agreement leaves the measurement vague.
Watch out
Common mistakes.
- Leaving accounting rules vague.
- Setting unrealistic working capital targets.
- Not reviewing the buyer's draft carefully.
Questions
People also ask.
What are completion accounts?
They are a deal-specific financial snapshot at completion used to calculate the final sale-price adjustment under the signed agreement.
Who prepares them?
Often the buyer prepares them after closing and the seller has a defined review and objection period. The contract decides the actual process.
What is the alternative?
A locked-box price is typically set using an earlier balance sheet with protections against value leakage. The choice depends on deal risk and negotiated terms.
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