How Working Capital Adjustments Quietly Change Your Deal Price#
A working capital adjustment can move the final price by tens of thousands of dollars after both sides already agreed on a number. Most sellers don't see it coming because it's rarely explained until due diligence.
What Working Capital Adjustments Actually Are#
Most SMB deals are structured to include a "normal" or "target" level of working capital (cash, receivables, inventory, minus payables) needed to keep the business running day to day. The purchase price assumes that target level will be in place at closing. If the actual working capital on closing day is higher or lower than that target, the price adjusts up or down to match.
Where It Gets Contentious#
Sellers sometimes draw down inventory or delay restocking in the months before close, intentionally or not, which can trigger a downward price adjustment right when they expected to collect full value.
Buyers sometimes set the target working capital level using a short or unusual historical period, inflating what "normal" looks like and creating a built-in price reduction.
Receivables collections timing, seasonal inventory swings, and prepaid expenses all move the number in ways neither side fully anticipates if it isn't modeled early.
The Fix#
Set the working capital target using a trailing 12-month average, not a single month or a cherry-picked period, so seasonal swings wash out.
Model the adjustment months before closing, not the week of. Sellers should know roughly what range to expect and manage operations normally rather than reactively.
Define exactly what counts. Cash, AR, inventory, and AP are standard, but items like prepaid expenses or accrued liabilities need to be spelled out in the purchase agreement, not assumed.
Agree on the mechanism for true-up in writing: escrow holdback, post-closing adjustment period, or a fixed estimate with no true-up at all. Each shifts risk differently between buyer and seller.
Where Openfair Fits#
Openfair's deal team works through working capital targets with sellers well before a listing goes live, so the number at closing doesn't come as a surprise to either side.
Getting This Right Early#
A working capital mechanism that's defined early and modeled honestly turns a common closing-table dispute into a formality instead of a fight.
FAQ#
Who sets the working capital target, buyer or seller? It's typically negotiated jointly during due diligence and written into the purchase agreement, usually based on a trailing 12-month average.
Can a seller avoid a working capital adjustment entirely? Some smaller deals use a fixed estimate with no post-closing true-up, but that shifts more risk onto whichever side guessed wrong, so it's less common on deals above roughly $1M.
Does inventory count the same as cash in these calculations? Usually yes, but inventory can be discounted for aged or slow-moving stock, so it's worth confirming how inventory will be valued before signing the LOI.
What happens if the actual working capital comes in below target at closing? The purchase price is typically reduced dollar for dollar to reflect the shortfall, which is why sellers should track this number in the months leading up to close.