Meaning
Financial spreadsheets detail the exact movement of money from a buyer to various recipients during a closing. A typical funds flow allocation specifies the amounts for debt repayment, shareholder payouts, professional fees and tax withholdings. It provides the final instruction for the distribution of the purchase price.
Payment Order
The document lists the bank account details and the routing numbers for every person or entity receiving a portion of the deal. Because funds flow allocation is a negotiated part of the closing package, it must be signed by all major parties to prevent disputes over the math. Errors in these instructions can lead to wires being sent to the wrong accounts or in the wrong amounts.
If a wire is sent to an incorrect address, the cost of recovery can be high and the delay can impact the timing of the entire deal.
Tax Withholding
Local regulations often require that a portion of the proceeds be held back to cover potential liabilities. The funds flow allocation identifies these amounts and the specific government agencies that will receive the payments. This clarity protects the founders from being held personally liable for taxes that should have been paid out of the company proceeds.
Final Distribution
Once the wires are sent according to the spreadsheet, the financial obligations of the buyer are generally considered satisfied. The signed funds flow allocation stands as the permanent record of who received what and why. It replaces all prior estimates and projections with a single, unchangeable statement of reality.
