Working Capital Adjustments in Business Sales Explained

If you've spent years building a business and are now in the final stretch of closing a deal, the last thing you expect is to lose $150,000 at the closing table — not because the deal fell apart, but because of something called a "working capital adjustment." It happens to sellers every week across Florida. Here's what you need to know so it doesn't happen to you.

What Is Working Capital in a Business Sale?

Working capital, at its most basic, is the short-term operational fuel your business needs to run day to day. In M&A, it's typically defined as current assets minus current liabilities — and it represents the liquid resources a buyer needs to operate the business from day one without injecting additional cash.

In a typical deal, the working capital adjustment works like this: both parties agree on a "peg" — a target working capital amount that the seller must deliver at closing. If the seller delivers more than the target, they get a dollar-for-dollar credit at closing. If they deliver less, they owe the buyer the shortfall. This true-up can happen at closing or in a post-close settlement period, usually 60–90 days after the transaction closes.

This sounds straightforward, but the definition of what counts as working capital, and what the target should be, is one of the most heavily negotiated parts of any M&A transaction. At CBH Business Group, we've seen working capital disagreements delay closings by weeks, reduce seller proceeds by six figures, and in rare cases, kill deals entirely. Understanding how it works before you go to market is one of the highest-leverage things a Florida seller can do.

How Buyers Set the Working Capital Target

Buyers don't pull the working capital target out of thin air. They typically calculate a "normalized" working capital figure based on a trailing 12-month average of your monthly balance sheets — sometimes called the LTM (last twelve months) average. The logic is simple: they want to receive the business with enough operational liquidity to sustain normal operations without a cash infusion on day one.

If your business historically carries $400,000 in working capital on a normalized basis, that's what a buyer expects to receive at closing. The peg is set to reflect the historical norm — not the highest month, not the lowest, but the average level of liquidity your business has needed to operate.

Here's where Florida sellers run into trouble. Many business owners aren't tracking their monthly balance sheet position with any rigor. They know their P&L — revenue, gross margin, EBITDA — but the balance sheet is an afterthought. When the buyer's financial team runs the 12-month average and presents a working capital target, the seller disagrees — but has no data to support a counter. That's a negotiation you'll almost always lose.

The businesses that navigate this best are the ones that begin tracking normalized working capital metrics 12–18 months before going to market, with clean, consistent monthly financials prepared on an accrual basis. If you're still on cash-basis accounting, switching to accrual at least 12 months before a sale is one of the most practical things you can do to protect your proceeds.

The Working Capital Peg: What Gets Negotiated

The peg negotiation is where most of the real dollars are at stake. Sellers typically want a lower peg — meaning they have to deliver less at closing and keep more cash. Buyers want a higher peg — meaning they're receiving more operational liquidity from day one. Both sides present their own calculation, and there are several definitional items that can dramatically shift the outcome.

• Accounts receivable aging: Does the peg include all A/R, or only receivables under 90 days? Buyers often want to exclude old receivables they consider uncollectible — but those aged invoices may represent real cash your business has always historically collected. The aging threshold is one of the most commonly disputed items in the peg negotiation.
• Inventory methodology: Is inventory valued at cost, FIFO, or LIFO? For product businesses, this difference alone can move the peg by hundreds of thousands of dollars. Buyers will also want to exclude obsolete or slow-moving inventory — which you may have always carried.
• Excluded cash: Cash is almost always excluded from working capital in a business sale — the seller keeps it. But restricted cash, certificates of deposit tied to leases, and customer deposits may be disputed depending on how the purchase agreement defines "cash."
• Deferred revenue: If customers have prepaid for services not yet delivered, this typically appears as a current liability — reducing your working capital. Buyers and sellers often fight over whether to include or exclude deferred revenue, especially in subscription or retainer-based businesses.
• Accrued liabilities: Vacation liability, warranty reserves, and bonus accruals all reduce working capital. If your books don't properly accrue these items throughout the year, you'll face an unpleasant surprise when the final working capital is calculated after closing.

Working Capital Component	Typical Treatment	Common Dispute
Accounts Receivable (<90 days)	Included	Aging threshold, reserve methodology
Accounts Receivable (>90 days)	Disputed	Buyer wants excluded; seller wants included
Inventory	Included at cost	Valuation method, obsolete stock exclusions
Prepaid Expenses	Typically included	Which prepaids qualify (insurance vs. other)
Cash & Equivalents	Excluded (kept by seller)	Restricted cash, deposits, petty cash
Accounts Payable	Included (reduces WC)	Disputed vendor invoices, timing of payables
Accrued Liabilities	Included (reduces WC)	Under-accrued vacation, bonuses, warranties
Deferred Revenue	Disputed	Whether to include or carve out at closing

The Post-Close True-Up: Where Sellers Get Blindsided

Most deals use an "estimated closing" mechanism for working capital. At closing, both parties estimate the working capital based on the most recent financials available. The deal closes using that estimate. Then — typically 60 to 90 days later — the buyer finalizes the actual working capital calculation based on audited or reviewed closing-date financial statements. If the actual working capital comes in below the estimate, the seller owes the buyer the difference. This post-close "true-up" is where sellers routinely face unexpected charges.

Common reasons sellers end up owing money in the true-up:

• A large accounts receivable balance that was counted in the closing estimate but not yet collected — and later written off or disputed
• Accrued liabilities (vacation pay, bonuses) that weren't fully reflected on the balance sheet at closing
• Inventory adjustments made during the buyer's physical count that revealed overvalued or obsolete stock
• Customer deposits reclassified as current liabilities that weren't included in the original working capital estimate

In most M&A purchase agreements, the buyer controls the preparation of the final working capital calculation — subject to a dispute mechanism — which gives them significant leverage if your books aren't airtight. At CBH Business Group, we always recommend that Florida sellers engage a sell-side quality of earnings (QofE) advisor before going to market, specifically to stress-test the working capital number and build a defensible position before the buyer's team comes in.

How Florida Sellers Can Protect Their Payout

There are several concrete steps Florida business owners can take to protect their proceeds from unexpected working capital adjustments.

Start tracking monthly balance sheets now. If you don't have 12 months of clean, accrual-basis balance sheets, you have no basis to push back on a buyer's LTM working capital calculation. Begin generating these monthly, even if your business has always operated on a cash basis. Your CPA or controller can help you make this transition — it typically takes one quarter to normalize.

Define working capital in the LOI, not just the purchase agreement. The Letter of Intent is where the working capital target is first established — but it's often defined vaguely as "normal working capital consistent with historical practice." That's a setup for a dispute. Push to attach a specific dollar target or detailed calculation methodology at the LOI stage, while you still have full negotiating leverage. Once the LOI is signed and the buyer is in due diligence, your leverage shrinks fast.

Engage a sell-side QofE provider. A quality of earnings report isn't just for buyers. Sellers who commission their own QofE analysis going into a deal arrive at the negotiating table with their working capital figures already independently verified and defensible. It typically costs $15,000–$40,000 depending on business size and complexity — and routinely saves sellers multiples of that in the working capital negotiation and post-close true-up. Learn more at our resources page.

Normalize accrued liabilities before going to market. Clean up under-accrued vacation pay, fully accrue commissions and bonuses on a consistent basis, and reconcile any deferred revenue balances. Buyers will find these items during due diligence. It's better to control the narrative by addressing them proactively than to have a buyer discover them and use them to renegotiate your deal.

Understand the deadband. Most purchase agreements include a "collar" or "deadband" — a range within which no adjustment is made. If you're within $50,000–$75,000 of the peg in either direction, neither party owes anything. Understanding where this threshold sits helps you prioritize which working capital disputes are worth fighting versus which are below the threshold and don't matter.

Working With CBH Business Group on Your Florida Business Sale

At CBH Business Group, every engagement we run in Florida includes a working capital planning conversation well before we go to market. We've seen too many sellers close deals at strong enterprise values — only to give back $100,000 or more in the post-close true-up. Money they never saw coming, because no one walked them through how the mechanism works before they signed the LOI.

Our process starts with a review of the trailing 12 months of balance sheets, an assessment of the buyer's likely working capital request based on comparable deals, and a recommended target range we'll negotiate from. We also help sellers understand when to push back — because buyers occasionally anchor to artificially high peg targets, counting on sellers not to understand the mechanics well enough to challenge them.

Florida's M&A market remains active heading into 2026. Private equity groups, family offices, and strategic buyers are still actively acquiring well-run businesses across home services, construction, healthcare, technology, and professional services. But sophisticated buyers run disciplined processes, and working capital is always on the due diligence checklist. Sellers who walk in prepared protect their proceeds. Sellers who don't often leave real money on the table.

If you're preparing for a business sale in Florida and want to understand what your working capital position looks like — and how to protect it — contact CBH Business Group for a complimentary consultation. You can also use our free business valuation calculator to get a baseline sense of what your business might be worth before we dig into deal structure. You can also visit our sell a business in Florida or business valuation pages for more detail. Call us directly at (407) 908-3845 — we're based in St. Cloud, FL and serve business owners throughout Central Florida and statewide.

The right preparation doesn't just make the sale smoother. It keeps more money in your pocket at the closing table.